APRIL 2019

A ROADMAP TO
AUTOMATION:
HOW AN SSI UTILITY BENEFITSALL PARTICIPANTS

SSIFAILURE
IMPACTS
Both acute and broad:$,$$$ Opportunity costs$,$$$ Tied-up capital$$$ Cash liquidity$$$ Counterparty risks$$$ Price dilution$$ Market liquidity$$ Inventory shortages$$ Settlement penalties$$ Fines$ Data reconciliation

Transforming the capital markets through automation
Technological change is widespread in the capital markets. The evidence iseverywhere on both the sell-side—where capital and cost impediments are driving
change—and the buy-side, increasingly influenced by pre- and post-trade dataanalytics. Even as the trade-lifecycle has trended toward automation, settlement,clearance, and custody have eluded the spotlight. According to McKinsey, around
45% of global finance can be automated using current technology, with anadditional 13% likely to automate in the near future by technologies underdevelopment.1 Regulation continues to be a catalyst. But as costs are wrung
out of systems upstream and regulators demand shortened settlement cycles
with increased penalties for non-compliance, settlement processes are finallyattracting the attention they deserve.
Addressing cybersecurity is inextricably also bound with technological evolution.
As threats mount, financial services companies are expected to spend $43B on
cybersecurity annually by 2023.2 In the settlement space, where manual processes
still use email to communicate settlement instructions, vulnerabilities can beeasily addressed by the use of automated messaging over secure connections.

Closing the loop to no-touch settlement
For many in the industry, settlement processes are “out of sight and out of mind”—until something goes wrong. Trade failures are surprisingly costly when all
factors are taken into account. The stock may have been borrowed, incurring
additional interest costs and the fail may have to be funded in cash. If it’s near
the month’s end, it could impact the balance sheet with commensurate effects
on regulatory requirements. On top of all this is the time spent by staff addressing
the claims, penalties, cancel and correct fees and manual verification. Global
Custodian reports that a global failure rate of just 2% is estimated to result incosts and losses up to $3 billion.3One of the biggest pain points for back and middle offices dealing with trade
exceptions is missing or incomplete Standing Settlement Instructions (SSIs).4SSIs cause a significant proportion of overall trade exceptions and failures. In a
study conducted by the TABB Group across a broad range of investment managers,
SSIs accounted for 18.7% of all fails.5 In fact, it is estimated that mid-sized

Capital Markets Infrastructure: How the Industry is Reinventing Itself, McKinsey, 2017
BizTech Magazine https://biztechmagazine.com/article/2018/09/financial-services-firms-face-increasingly-high-rate-cyberattacks
Global Custodian: https://www.globalcustodian.com/dtcc-launches-online-post-trade-exceptions-platform/
4
The Industry View on Trade Exceptions, DTCC, 2017, http://www.dtcc.com/exceptions
5Standing Together: An Instruction to the investment community, TABB Group, 2016
12
3

2

THE
HUMAN
ERROR
TOLL
Manual SSIs create downstream
exceptions that are not always
immediately visible. These include
fines, regulatory impacts andopportunity costs, interest on borrowed
stock and time to address claims andpenalties. Plus the added issue of a
failing buy causing the chain effectof a failing sell.

≈100% firms have trade fails due
to incorrect SSI info

18.7% average fails due to SSI issues
3-4% electronic trade confirmation
fails due to missing SSIs

$3B estimated costs and losses
from 2% global fail rate
$1-2M avoidable costs in exception-handling time (for mid-sized IM)

2020 CSDR live in Europe: Brings
daily fail penalties and mandates buy-ins

investment managers could alleviate between $1M to $2M annually in exception
handling overhead through automation.6Not only is human error a factor in causing an SSI-related fail, manual processes
exacerbate the cost of remedying the situation. These manual processes create
increased risk exposure, even when trades don’t fail, with most communication
still occurring via email instead of through secure networks. The number ofpossible manual touch points relating to SSIs during the settlement process isstaggering. Trade data is handled by numerous disparate systems from matchingengines to counterparties and settlement organizations, while flowing across anarray of market infrastructure facilitators.

Where we are now
Increasingly, market participants are focusing on their core offerings that generatevalue and are looking to shared utilities to mitigate costs and improve processes.
PWC reports that more than 40 such cooperative efforts to address common needs
have arisen in the past several years.7 These utilities facilitate a range of activities
from client services and on-boarding to cash and collateral management. In thesettlement space, the industry’s SSI utility is the ALERT platform, harboring“golden copy” SSI data, communicated via trusted protocols.
While the solution for effective SSI management has been widely embraced,with over 60% coverage by a variety of market participants on all sides of theindustry (custodians, broker-dealers, prime brokers and investment managers),
it’s effectiveness will only be cemented by full-scale adoption.
Even though the ALERT platform has become the industry’s SSI standard, there
is still work to be done to achieve the ultimate goal of 100% straight-throughprocessing (STP) in the post-trade space. For many organizations, priorities arerevenue drivers and regulatory demands; surpassing operational risk reduction
and process optimization in their middle and back offices. Achieving a no-touch
workflow while juggling limited technology resources seems out of reach. Also,
for some investment managers, the incentives to fully automate are not readily
perceived; and there is misalignment between their obligation to provide andmaintain the data with their ultimate responsibility for it, which they believe resides
with their prime broker or global custodian.

Standing Together: An Instruction to the investment community, TABB Group, 2016
Standing Together: An Instruction to the investment community, TABB Group, 20167Market Utilities in Financial Services: What role will you play?, PWC, 2016
563

The Benefits of Automation

THE ALERTADVANTAGE

When the SSI workflow is automated, the most immediately noticeable improvement—beyond cost savings and security—is data quality. The consistency andstandardization that comes from automation means valuable time isn’t spentscrubbing data and submitting files manually.

The industry’s SSI utility for sharing
accurate data with the entire global
institutional investment community,
ALERT has:

The second benefit is timeliness. With automation via a centralized SSI utility,
investment managers no longer need to contact their custodial bank or broker
dealer to request SSI information and manually distribute it out to multiple globalcounterparties. In fact, automated SSIs can even be sourced just-in-time to enrichin-flight trade agreements. With reliable data and negligible human involvement,
replicating instructions that need to be distributed to multiple global counterparties
happens almost instantaneously.

8.1 million SSIs
All major asset classes

6,000 community members
Over 1.1 million SSIs managed
by custodians and prime brokers

99% SSI compliance rate
Multi factor data authentication
available on all SSI updates

For the buy side, the reduction in effort and processing risk plus the increase
in data quality and timeliness offered by the automation of SSIs is irrefutable.

“When you on-board a new account—rather thantrying to open 50 or 60 markets manually—youcan create an automated version of a file andhave that data out to broker-dealers as soon as
you start trading.

”—Cihan Kasikara, Head of Global Trade Services, Franklin Templeton Investments

Clearing the path—the obstacles have alreadybeen tackled
Achievement of full SSI automation throughout the industry is very much acommunity effort, as everyone ultimately benefits. However, there are participants
across the industry who remain unaware of the tools and help available for themto start and complete the journey.
For investment managers who aren’t yet subscribing to the ALERT service, there
is help available through DTCC’s free ASSIsT (Automating Standing Settlement
Instructions Together) initiative. This program enables buy-side clients to leverage
DTCC to maintain their instructions within the ALERT platform for them, helping
to streamline internal workflows and processes. It’s also simple for sell-side broker-dealers to invite their manual buy-side clients to participate.
4

THEROADMAPFor custodians, cumbersome processes—such as using internal databases toaccess client SSIs and providing them in customized reports sent through unsecuremeans—are eliminated through automation. The tipping point has been reachedand the benefits of standardization are attracting formerly hesitant players.

“Move from manual to automated andfrom automated to custodian-managed.
ASSIsT—­Buy-side clients can use thisprogram to leverage DTCC to maintaintheir instructions within the ALERT platform.
And with some of the largest prime brokers
using ALERT ASSIsT, hedge funds whochoose to leverage the program are able
to establish a direct link to their SSI details.
ALERT—Subscribe to the ALERT platform,
the industry’s largest and most compliant
online global database for the maintenanceand communication of account and standing
settlement instructions (SSI). An ALERTsubscription enables full access to acommunity of investment managers,
brokers/dealers and custodian banks toshare accurate account and SSIs
automatically worldwide.
GC Direct—Automates the exchangeof SSIs between a custodian’s central
repository and the ALERT host. This
enables the global custodian/prime
broker to own and manage the SSI data,
effectively creating the “golden copy”
within the ALERT platform.

”—Joe Liguori, Managing Director, Strategy and Business Solution Group
Securities Processing, JP Morgan Chase

The final destination:
The custodian-managed model
One of the challenges noted by the buy-side community has been the abilityto maintain the accuracy and completeness of their SSIs in a timely manner. To
address this, DTCC has developed ALERT’s Global Custodian Direct (GC Direct)
workflow providing custodian banks and prime brokers the ability to administersettlement instructions directly for their buy-side clients using industry standard
ISO 20022 compliant messages.
As the owner and manager of SSIs, the global custodian or prime broker effectively
creates the “golden copy” within the ALERT platform. Early adopters of this optimal
custodian-managed model have already witnessed significant benefits. Upon initialconversion to GC Direct, the client bases of two custodians using the platform
report reductions in SSI-related fails of between 40-50%.

“8 of the world’s largest global

Across our top six clients, we’ve seen a 39%
reduction in fails due specifically to incomplete
or unmatched SSI data. For our largest client on
GC Direct, we’ve seen a 54% reduction in fails.*—Bob Stewart, Senior Vice President, Head of Global Custody Product,Brown Brothers Harriman

custodians are on GC Direct

5We’ve seen instances of about a 50% failreduction. We’re dealing with over 500,000
SSIs, so if any of our professionals arespending even a minute on those 500,000SSIs, that’s 8,000 hours saved. That’s atremendous efficiency boost.

*Numbers based off the initial 6 month time-frame for the top six clients utilizing GC Direct.

”

THE ULTIMATEAUTOMATION GOAL
Reduce fails and othersettlement risks

Eliminate data input errors

The rewards of participation
When the middle and back offices are fully automated, the prevalence of clean,reliable settlement data reduces risk, enhances operations, frees personnel toperform more valuable tasks, and creates significant cost savings.
Participating in a custodial managed model is more than conforming to an industry“best practice.” Eliminating SSI-related trade fails not only benefits both sides of
the trade but enhances the overall functioning of the marketplace. It is self evident
that utilizing only the highest quality data throughout the entire trade lifecycle isthe best path forward.
FOR MORE INFORMATION, visit www.dtcc.com/SSIRoadmap today.

Enhance security
Process trades faster andmore efficiently
Lower operational costs© 2019 - The Depository Trust & Clearing Corporation. All rights reserved.
The services described above are provided under the “DTCC” brand name by certain affiliates of The
Depository Trust & Clearing Corporation (“DTCC”). DTCC itself does not provide such services. Each of theaffiliates, including DTCC ITP (UK) Limited, a private limited company incorporated in England and Wales(company number 4007732), with registered office at Broadgate Quarter, One Snowden Street, London EC2A
2DQ, is a separate legal entity, subject to the laws and regulations of the particular country or countries inwhich such entity operates. DTCC ITP (UK) Limited is authorised and regulated by the Financial Conduct
Authority and may be the relevant affiliate that is offering the services described above.
The services described above are provided under the “DTCC” brand name by certain affiliates of The Depository
Trust & Clearing Corporation (“DTCC”). DTCC itself does not provide such services. Each of these affiliates isa separate legal entity, subject to the laws and regulations of the particular country or countries in which such
entity operates. See www.dtcc.com for a detailed description of DTCC, its affiliates and the services they offer.

6Certain DTCC ITP LLC services are subject to regulation by the U.S. Securities and Exchange Commission(“SEC”) and are offered by DTCC ITP Matching (US) LLC (“DTCC Matching”), which is set out in SEC Release
No. 34-44188; File No. 600-32; 66 FR 20494 (April 17, 2001). TradeSuite ID and CTM are services of DTCC
Matching and are subject to SEC regulation when used for trades in which either the broker-dealer or its
institutional customer is a U.S. entity and the securities in the trade are issued by a U.S. issuer. No otherservices offered by DTCC ITP LLC are regulated.