Supporting Regulation With Real-Time Data
CJ Emson, EquiLend Marketing
October 23, 2023
In the decade since DataLend launched, the regulatory landscape of the securities finance industry has changed dramatically with MIFID I and II, CSDR and SFTR adding greater transparency across the sector. Now, we stand once more at the precipice of change. The directive from the SEC to reduce the securities settlement cycle from two to one day after the transaction (T+1) will impact the long-term future operating model for the entire financial sector. Further pressures from the SEC with the introduction of the end of day reporting requirement for US trades is in the process of being finalized with the announcement of SEC 10c-1. In preparing to support accelerated settlement it is imperative that automated solutions are embraced, and that data can flow smoothly and even more quickly in and out of firm’s systems. Arming the industry with these data flows, EquiLend’s Data & Analytics Product Solutions ensure end-users have the information they need to make informed and more importantly, timely decisions.
T+1 Challenges an Accepted Set of Inefficiencies
The move to a shortened settlement cycle for US and Canadian market participants, set by the SEC is due to be come into force in May 2024 for North American market participants. In current practice, the shorter settlement cycle presents a number of operational challenges linked to time zones across global trading partners which are compounded by historic inefficiencies across the trading ecosystem.
With regulatory change perpetually on the horizon, firms are looking to technology to support their operations now, and to futureproof their tech stacks as regulatory advancements and pressures set the agenda for investment priority. Opportunities to improve upon the layered process inherent in complex trades are welcome.
Inaccuracies early on in the trade lifecycle have the potential to create a waterfall of consequences further downstream including late settlement fees and other penalties. Equally concerning are the challenges of collateral availability; funding requirements need to be sourced faster leaving little room for error. Add in the extended recalls deadline of 23.59pm EST and securities finance firms will need to agree accurate trade terms and mobilize collateral quickly and accurately, within one business day. The opportunities afforded by EquiLend’s Data & Analytics Solutions data negate many of these challenges. Leveraging real-time data users can view current activity in a name to quickly see current liquidity in the market.
The challenges are real and are raising questions across the entire trade lifecycle. The cost of fails prevention may feel high but long term, the ongoing costs to maintain inefficiencies rather than fund improvements in the system are greater again.
Technology is the solution to meeting the day-to-day operational demands faced by participants in the global markets. EquiLend has a 22-year history of bringing standardization to trade execution, lifecycle management and regulatory compliance, from the industry wide adoption of the NGT trading platform to our latest innovation – 1Source, our distributed ledger-based technology (DLT) which will transform the industry as a single source of truth for securities finance transactions.
Critically, 1Source’s transaction and lifecycle data synchronization across all participants means settlement on T+1 or indeed, T+0, is a much simpler proposition.
We continually monitor where the market is headed tomorrow so we can deliver solutions for our community today. This future-proofing mentality means our solutions already support T+1 today. Utilizing pre-matching and automated execution on EquiLend’s Next Generation Trading (NGT) platform, firms can avoid the 30% break rate typical of manually processed trades enabling more efficient trading downstream. A recent NGT enhancement, Competitive Bid, further enables on-platform execution for hard-to-borrow and specials, in addition to existing widely used functionality for general collateral (GC) trading, powered by real-time data. The addition of EquiLend Data & Analytics’s real-time dataset to our point of trade solutions supports further T+1 readiness and paves the way for T+0 transactions; the next roadblock on the road to greater trade efficiency.
In addition to liquidity risk and the problematic speed of funding under T+1 as covered above, efficient exchange of collateral is another element which could threaten trade settlement in the shortened cycle, but is easily supported with our Post-Trade Solutions, which offer optimal efficiency in all operational processes.
Our latest solution, the Risk Resolution Suite, comprises Recalls, Returns and Settlement Monitor in one UI, enabling seamless connectivity and automation of key returns and recalls processes. Settlement Monitor provides intra-day risk monitoring to track and eliminate settlement threats with real-time feeds taken from EquiLend Exposure, SSI Repository, Recalls, Returns and Unified Comparison. EquiLend Exposure further supports collateral management while Mark-to-Market Comparison offers market participants opportunities to streamline and centrally manage all aspects of the trade lifecycle.
All of this is underpinned by EquiLend’s Data & Analytics real-time dataset which ensures clients can have current data in their hands, to inform their decision making, in the shortest possible time. EquiLend’s flexible and interoperable suite of services allows firms to create a tailored package of interconnected and automated solutions which addresses their specific business requirements, ensuring optimal trade efficiency; the gold standard in supporting T+1.
Futureproofing an Industry
Big change for big progress. Delivering reduced trade latency, improved accuracy, better collateral mobilization and street-level transparency powered by EquiLend Data & Analytics real-time data across the full trade lifecycle is not wishful thinking.
Utilizing technology to improve future outcomes is a current reality for firms making use of our comprehensive solution set. With North America making the change to T+1 and driving the advancements needed to support this ever-decreasing timeline from trade to settlement, the global opportunities are wide ranging. India and parts of APAC have already made the switch. European markets can be considered a likely future region to do the same.
The EquiLend Data & Analytics team is consistently investing in creating new and insightful data points to put information into users’ hands quickly.
More timely data provides users the ability to quickly make decisions, perform deeper analysis and be better prepared for faster settlement cycles and reporting timelines.
The future of finance sits comfortably with the advancement of technology where incremental efficiencies can be gained with strategic use of fintech solutions. An efficient new future, one in which T+0 is easily possible, is a positive side effect of ensuring T+1 readiness now.