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September 1, 2012

Trade Failure Woes Continue, Omgeo Warns

By Gregory Bresiger

Clear and settle faster, but make slowpokes pay for failures. That's the analysis of one trade operations organization worried about the clearing and settlement standards of the United States.

Indeed, potential failed trades are annually putting some $1.2 trillion in equities and bond trades at risk, even though the rate of failures has been in decline, according to Omgeo.

What should be done?

Move with the rest of the world to a shorter settlement cycle and fine those responsible for failed trades, said Omgeo, which is wholly owned by DTCC and Thomson Reuters.

"Both sub-custodian banks and their clients agree that fewer trades would fail if settlement failure incurred a financial penalty," says "How to Make Settlement More Efficient and Less Risky," an Omgeo white paper.

The paper warns that other markets are improving settlement standards faster than the U.S. The paper quotes the European Commission proposed settlement, which includes a T+2 requirement.

European regulators warn "a participant to a securities settlement system that fails to deliver securities to the receiving participant on the intended settlement date will face numerous consequences."