Trade matching comes under regulatory focus
Markets Media - Shanny Basar
30 July 2015
Market participants should confirm all the details of a transaction within 15 minutes of execution to meet new regulations such as the more complex reporting requirements under MiFID II, which covers financial markets in the European Union.
Trax, the MarketAxess subsidiary which provides fixed income market data, trade matching and regulatory reporting services, included the 15 minute recommendation in a white paper “Post-Trade Risks… Settling the Costs.”
Camille McKelvey, post-trade product manager at Trax, told Markets Media: “There is no regulatory obligation to match trades. Linking both post-trade matching and transaction reporting can greatly improve your data quality and reduce regulatory risk. This is where our platform adds value and we expect to see more matching under MIFID II.”
There have been estimates that the number of data fields that need to be reported will increase by 250% under MiFID II.
The need to identify and correct trade data errors earlier in the trade life cycle became increasingly important after Europe shortened its securities settlement cycle by one day from T+3 to T+2 in October last year. In the US, the T+2 Industry Steering Committee released a white paper last month outlining how to move from T+3 to T+2 by the end of the third quarter of 2017.
McKelvey said: “The industry is more familiar with matching the economic details of a deal on trade date but should also do the same for the settlement details.”
If errors are not identified and corrected quickly the cost of fixing them across the firm increases and the risk of a loss or regulatory breach also goes up.
McKelvey added: “We are reworking the front-end graphical user interface which we will roll out to clients later this year so they have management information on peer-benchmarking analysis and trends such as counterparties who do not match trades within the appropriate timeframe.”
After MiFID II, the Central Securities Depositories Regulation will require a 99.95% settlement rate, with fines imposed for failures to meet this target.
“If the post-trade affirmation process does not improve, meeting the 99.95% settlement target under CSDR will be problematic,” added McKelvey.
The Trax white paper said settlement rates are currently around 97% in many of the liquid bond markets.
Market participants were split on their ability to meet the CSDR mandated settlement rate of 99.5% in a survey at the MarketAxess and Trax European Capital Markets Forum in London in June. A majority, 56%, were either somewhat or very confident in meeting the target but 39% were not confident at all.
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