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How to Make Settlement More Efficient and Less Risky

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26 July 2014
United Kingdom

The global move towards shorter settlement cycles as a significant driver of operational change

The purpose of this paper is to explore the extent to which securities market participants and their service providers in all of the major and emerging securities markets of the world are matching trades successfully, and the contribution this is making to greater efficiency in the settlement process. For the purposes of this paper, pre-matching is the stage at which two sides to a trade agree on the details, which may not match initially, while matching is the stage at which the details match and therefore the trade proceeds to settlement. Where “clients” of sub-custodian banks are referred to, these are mainly global custodian banks acting on behalf of fund managers and global investment banks acting on behalf of themselves or fund management clients. The paper estimates the likely cost of the current level of settlement failure, and explores why, so far, the cost has not been quantified. It concludes with a series of recommendations drawn from the analysis. The most important recommendation is that the matching of trade details on the same day as the trade is executed is an essential prerequisite to shorter settlement cycles.

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