“A funds manager that already uses a central trade manager just needs to add their fixed income flow, but a major problem is that there’s no common identifier for short-term debt instruments. For up to 90 days’ duration, no ISN number gets assigned, so if you’re going to be trading these things quickly you really need to be matching as efficiently as possible.” However two major local managers – Colonial First State Global Asset Management and AllianceBernstein – recently moved to central matching and Feanauti says this is encouraging other managers to consider moving down that path. THE UNITED STATES OF AFFIRMATION APATHY Australia’s rate of SDA may be a slow within the Asia-Pacific, but in fairness that region’s SDA rate of 94.4 per cent is easily the world’s best. The lowest was in the Americas, at just 53.8 per cent, a result dragged down, surprisingly, by the United States which records SDA rates of just 46.9 per cent.
The surprisingly “relaxed attitude” of the US towards trade settlement efficiency was uncovered by Omgeo in its report. “The US is one of the rare markets where trades can settle even if a trade has not been affirmed or matched between a broker/dealer and an investment manager. The main reason for this anomaly appears to be historical – US utilities have simply never felt the need to mandate affirmation or matching as a prerequisite of settlement. Not only does this unnecessarily increase operational risk in the US, but it also negatively impacts SDA rates,” the paper states. Omgeo’s analysis confirms that securities trades affirmed on the same day have a much higher chance of settling on time and are less likely to fail. Its data also suggested a direct correlation between high SDA rates and high settlement rates.
“Settlement efficiency in countries with SDA rates of over 90 per cent – India, Taiwan, Hong Kong, Japan, Singapore and Korea – is 26 per cent higher than in countries with SDA rates of less than 70 per cent – Brazil, Italy, South Africa and the United States,” according to Omgeo’s paper. As Europe debates shortening settlement cycles – reminiscent of the endless debates in Australia about moving beyond T+3 – Omgeo’s analysis showed that there are benefits of a regulatory and industry push to shorten the settlement cycle. “Four of the five countries which display the highest SDA rates and highest settlement efficiency scores require T+2 settlement for most securities, including India, Taiwan, Hong Kong and Korea. Similarly, South Africa, which has one of the lowest SDA rates and settlement efficiency scores, operates on a T+5 cycle,” the discussion paper said. “These data points suggest that countries that have imposed shortened settlement cycles are achieving higher efficiency and lower operational risk than other countries with more relaxed standards.”
