Citing that “Europe generally has lower settlement efficiency than other regions”, the Association for Financial Markets in Europe (AFME) has published a joint report with Deloitte to analyse the causes of settlement fails in the EU securities market. In addition, the study, shared recommendations for improving the efficiency of post trade processes.
AFME qualified that although Europe’s settlement efficiency is low, it is “difficult to draw a direct comparison due to significant differences in market structure, processes and standards”.
The report drew a distinction between matched fails and unmatched fails, stating that although matched fails “make up the larger proportion of overall fails”, the majority of unmatched fails are “preventable”.
Chasing efficiency
Recommendations presented in the report for improving the efficiency of post trade processes include reducing exceptions, expediting exception resolution, and optimising settlement of available inventory.
To reduce exceptions, AFME suggested that all information necessary for settlement should be provided on trade date, and this should be supported by a regulatory requirement to complete allocation and confirmation processes on trade date.
The adoption of a unique transaction identifier (UTI) in post-trade processes was recommended for expediting exception resolution. In addition to that, the report mentioned ensuring “consistent criteria and tolerances between pre-settlement matching and CSD-level matching, including place of settlement (PSET) as a matching criterion”.
As for optimising settlement of available inventory, the report recommended that CSDs “offer auto-partial settlement and hold with partial release”, as well as “increase frequency of settlement batches or adopt real-time settlement, with increased harmonisation to support cross-border settlement”.