Commentary

Lesli Fairchild
Traders Magazine Online News

What Next for Traders Saying Goodbye to AOL Instant Messenger?

In this exclusive to Traders Magazine, Lesli Fairchild discusses how the DEC 15 shutdown of AOL Messenger will affect traders and what alternatives are out there.

Traders Poll

Is information leakage a major concern of yours when you trade?



Free Site Registration

June 3, 2013

Clearing Standards Lag Trading Standards

By Editorial Staff

After years of technology breakthroughs, it is now taking just milliseconds to trade, but improvements in settling a trade have not kept up. Given the potential of another financial crisis, that could pose settlement and operational risks.

Those are some of the issues discussed in the recent paper "The Road to Shorter Settlement Cycles: Creating a Trade Date Environment in the U.S. and Across the Global Markets." The paper is the work of Omgeo, an operations firm jointly owned by the Depository Trust & Clearing Corp. and Thomson Reuters.

Equity trade fails in the United States, according to industry observers, remain at close to 10 percent.

So why are post-trade practices lagging trading?

"Today, the global settlement landscape includes multiple non-harmonized settlement cycles ranging from five days after execution to zero (same-day settlement), and each market determines its settlement cycle individually," the paper says. There is also a divergence within markets. Equities generally settle within two to five days; however, bonds settle in one to two days, while money markets are finished within a day, according to Omgeo.

Shorter settlement cycle should be the goal of all markets, Omgeo says. But that, the trade processing firm says, can "only be achieved through mandated trade date matching and improved accuracy and expanded overage in the account and standing settlement instructions (SSI) process."

Same-day affirmation-verifying the details of the trade on the same day of the trade-as well as shorter settlement cycles would greatly improve post-trade practices, Omgeo officials say.

The Omgeo paper comes at a time when the industry is considering reducing the settlement cycle from three to two days. The T+3 standard has not changed since 1995. That's when it was reduced from T+5.

(c) 2013 Traders Magazine and SourceMedia, Inc. All Rights Reserved.
http://www.tradersmagazine.com http://www.sourcemedia.com/