Omgeo defines same-day affirmation (SDA) as: “the agreement of all trade details on trade date (T+0) between a broker/dealer and an investment manager (or their agent)”. According to its recent industry discussion paper on the subject, Omgeo says the case for SDA is “based on the simple premise that by agreeing on the details of a trade more quickly, operational risk, costs and inefficiencies are significantly reduced. If you can lock-in trade details sooner and affirm on trade date, you will have that much more time to identify and resolve any potential errors, and so the chances of a trade failure are reduced.” The chief operating officer of boutique Paradice Investment Management, Anthony Hammond, agrees. A move to same-day trade affirmation was one of the changes made when Paradice moved administration of its mandates to National Asset Servicing in 2008.
Ensuring same-day affirmation might mean that Hammond and his team “have a bit more work to do at the end of the day”, confirming trades with their brokers and waiting for the “fills” to be returned, but he believes the effort is worthwhile. “Our portfolio managers need to sit down in the morning knowing that the positions they’re looking at are fully reconciled, that they’ve got a clean sheet of paper in front of them.” Hammond says same-day affirmation also gives his team a head-start on resolving any “settlement breaks” that may occur, such as a mismatch with the confirmation data sent back by the broker. The chief operating officer said such “breaks” were rare, and that the same-day affirmation process is mostly automated, occurring as trades are made intra-day through electronic trade confirmation systems. Paradice IM uses IRESS for Australian equities trades and Omgeo for the international equities business it established in February out of Denver, Colorado.
According to the Omgeo study, the proportion of Australian trades affirmed on the same day is 85.8 per cent, which is good in global terms although low in the Asia-Pacific, where the regional average of same-day affirmation is 94.4 per cent. However, the SDA rate calculations are based on transactions processed through Omgeo services, but do not include transactions processed manually or through any proprietary systems. The regional manager for Omgeo, Julie Feaunati, says the SDA rate for equity trades in Australia would be somewhat lower if non-Omgeo trades were included. She says it is really fixed interest trades which require attention in Australia. “Most fixed income trades in Australia are still locally matched, and while the failure rate is pretty low the risk rate is extremely high – it’s because everybody is scrambling around before the T+3 deadline to get trades settled,” she says. (The difference between local and central matching is explained in the breakout box.) Feanauti says the over-the-counter nature of fixed income, and the sheer number of fixed income products, also contributes to the tardier affirmation record.