Addressing the impending surge in penalty fees

Wealth Mosaic
Wealth Management

The European Securities and Markets Authority (ESMA) proposes revisions to the penalty rate processes which could see fees skyrocket, as outlined in the ESMA Consultation Paper – Technical Advice on CSDR Penalty Mechanism – 15 December 2023.

With T+1 looming, the financial landscape stands on the precipice of a fundamental shift. While ESMA’s intentions aim to foster efficiency and accountability, the proposed changes pose a daunting challenge to affected parties, sparking debates over technical feasibility and the need for broader structural reforms.

The ESMA proposals include one option whereby penalty rates increase progressively up to six business days (after which they remain constant) based on the existing types of fails, as well as introducing a new type of settlement fail for lack of ETFs.

The following table sets out the proposal for the progressive penalty rates, which could potentially see a firm having to pay up to 25 times the current penalty rate if trades remain unsettled: 

A second option suggests adjusting the charges for failing to deliver specific asset classes based on their liquidity profiles.

Both options would result in substantially higher settlement fees and require firms to implement operational changes and processes to avoid failed trades from occurring rather than simply managing them.

In a recent article, Theo Normanton of WatersTechnology reported that penalty fees are set to skyrocket under ESMA’s alternative proposals, with expert opinions projecting an annual increase from €1.7 Billion to €10.2 Billion in generated CSD fees under option one and could reach up to €23 billion (US$24.9 billion) a year under option two.

If either of these options come into force, they would necessitate urgent action to implement a robust failed trade management solution. This solution must not only address the immediate challenge of mitigating penalty fees but also lay the foundation for more resilient and efficient settlement processes.

In a T+1 world, prioritising “Failed Trade Avoidance” over “Failed Trade Management” is the optimal approach.
SureVu® from corfinancial® stands out as the definitive solution for buy-side firms, empowering them to proactively prevent trade failures rather than just managing them after the event. With SureVu, say goodbye to the hassles of failed trades and embrace a future of seamless transactions and unparalleled efficiency.

Management Information Dashboard: SureVu provides asset managers with an Early Warning System highlighting trade statuses of concern in a pre-settlement window before settlement day, enabling prompt resolution of any issues and preventing potential failures.

Relying on your Data: SureVu employs the efficient method of leveraging an asset manager’s local trade records to monitor trade statuses, ensuring a seamless process based on 100% of executed trades. In contrast, some competitor solutions rely on third-party records creating potential reliability and timeliness issues, hindering effective trade management.

Real-Time Updates: SureVu distinguishes itself by providing real-time updates sourced directly from custodian banks and prime brokers through SWIFT messages. This guarantees access to timely and precise information, thereby improving capacity to meet regulatory obligations and prepare for T+1. In cases where custodians are unable to furnish information via SWIFT, users can manage status updates within SureVu, ensuring a thorough audit record for all executed trades.

Compliance Assurance: industry-based compliance is non-negotiable. SureVu is designed with the Settlement Discipline Regime as its core, ensuring firms adhere to the rules.

Conclusion
As ESMA’s proposed penalties loom large, the adoption of SureVu emerges as a critical imperative for market participants. By leveraging its advanced features and real-time capabilities, asset managers can navigate the complexities of trade settlement failures with confidence, mitigating risks and ensuring compliance in an ever-evolving regulatory landscape.

SureVu: Your Shield Against the Menace of Failed Trades in the Era of CSDR’s Settlement Discipline Regime

Failed-Trades-in-the-Era of-CSDR-Settlement-Discipline-Regime

In the tumultuous world of asset management operations, where every trade counts, the spectre of failed trade management looms large. In the wake of the Central Securities Depository Regulation (CSDR) settlement discipline regime, the consequences of failing trades are something firms need to address. Efficiencies and controls within Asset management firms are in the spotlight, and without a vigilant guardian, the risk of non-compliance is a concern. Enter SureVu – the software system designed to help you avoid failed trades rather than manage them.

The Perils of Failed Trade
The CSDR settlement discipline regime has heavily impacted the landscape of securities trading. With more stringent measures in place, financial penalties for failed trades may escalate to previously unseen levels with the arrival of the T+1 settlement cycle. Firms failing to meet their settlement obligations face penalty fees and a harmed reputation.

Where governance and controls are key, ignorance is not bliss; it’s a dangerous gamble.

The consequences of failing trades are not limited to financial losses; they extend to the credibility and professionalism of an asset management firm.

SureVu: The Beacon of Assurance
A proactive solution that identifies and addresses potentially failing trades before they snowball into avoidable costs.

Early Warning System
SureVu acts as an early warning system, instantly notifying asset management firms of potential failing trades, managed via real-time SWIFT update messages from custodian banks. Its real-time monitoring ensures that you stay one step ahead, shielding your firm from the issues of settlement failures. By better managing pending trades, clients have seen up to a 75% reduction in failed trades, which is essential to meet stricter settlement processing times as part of the T+1 settlement date changes.

Compliance Assurance
With the industry-based controls imposed by the CSDR, compliance is non-negotiable. SureVu is designed with the settlement discipline regime at its core, ensuring that your firm adheres to the rules and sidesteps the pitfalls that can lead to unnecessary financial costs.

Know the Cost
Custodians report penalty fees on a daily basis and SureVu helps firms reconcile them monthly. Users stay well-informed about the status of trades throughout the entire trade lifecycle, minimizing the chances of trades not being matched before the settlement date.

Conclusion
Asset Managers must reflect operational excellence and the time for complacency has long passed. SureVu is the shield that stands between you and the increasing threat of larger penalties with the change of trade cycles from T+2 to T+1. Embrace the confidence that SureVu brings to the table, and let your firm navigate the future with certainty and resilience.

If you would like to discuss any of the points raised here, please contact us at resources@corfinancialgroup.com or click here to learn more about corfinancial’s post-trade settlement solutions, Salerio and SureVu.

Are your trade processing systems fit for purpose?

Not fit for purpose showing an ice cream cone

David Veal, Senior Executive at corfinancial®, outlines why trade processing systems in the buy-side arena may no longer be fit for purpose.

Wealth Management

The T+1 settlement cycle is due to be instigated in May 2024, and efficient trade processing systems are critical for the smooth operation of any financial institution. However, when such systems fail to address demands for accurate, efficient, and fast-paced processing, it can have far-reaching consequences for an organisation. This article dissects key factors that can lead to the failure of a trade processing system being fit for purpose, with a focus on common technical and operational issues. 

Root causes of problems with dated trade processing systems

Technical issues
Inadequate infrastructure: one of the primary technical issues that contribute to the failure of such systems is outdated and inadequate infrastructure – Dated systems often struggle to handle an increasing volume of trades, leading to performance bottlenecks and frequent outages.

Integration challenges: the lack of integration with other critical systems, further exacerbates technical shortcomings – This results in a disjointed workflow and hinders real-time decision-making.

Scalability problems: many in-house systems can fail to scale effectively with the growing demands of the business. As a result, increasing numbers of trades lead to delays, inaccuracies, and ultimately economic and reputational costs from failed trades.

Operational issues
Inefficient processes: poor or manually orientated operational processes play a significant role in the failure of many trade processing systems. Manual data entry, redundant workflows, and a lack of automation lead to errors, delays, and increased operational costs.

Inadequate training or intuitive functions: lead to suboptimal utilisation of a system’s capabilities and an increased risk of errors.

Insufficient monitoring and alerts: the absence of robust and timely alerts means that potential issues are not identified and addressed in a proactive manner. A reactive rather than proactive approach further exacerbates the impact of operational challenges.

Needing more people: reducing operating windows, where exception management is not maximised, results in a need for ‘more hands on deck’, in order to beat the clock. Changing working hours for operational staff can be challenging and costly.

Implementing changes
Organisations need robust solutions to address the technical, operational, and procedural challenges that lead to failures associated with ineffective systems. Two prominent platforms that have demonstrated effectiveness, governance, and controls in trade processing management are Salerio and SureVu from corfinancial.

Salerio is a trade management platform known for its ability to streamline trade processing operations and enhance efficiency, addressing technical issues that plague trade processing systems.

Here is how Salerio can serve as a solution:

  1. Scalable infrastructure: designed to handle high volumes of trades, ensuring that the system can adapt to the evolving needs of the business without compromising performance.
  2. Seamless integration: Salerio offers seamless integration with other critical systems, including OMS and position-keeping platforms. This integration fosters a cohesive workflow, enabling real-time decision-making and reducing the risk of disjointed operations.
  3. Automation and workflow optimisation: by automating manual processes and optimising workflows, Salerio minimises errors and delays associated with inefficient operational procedures, leading to increased operational efficiency and reduced costs.

SureVu is a failed trade management solution designed to enhance an organisation’s adherence to industry standards and regulations. In the wake of the new Settlement Discipline Regime (‘SDR’) introduced by the CSDR, SureVu plays a pivotal role in failed trade avoidance, rather than failed trade management activities still adopted by many firms.

SureVu provides governance to reduce the risk of settlement discrepancies. Its intuitive interface empowers users to avoid settlement failure rather than manage it, enabling high levels of STP.

Solving the problems
By integrating Salerio or SureVu into the operational framework, organisations can easily address the root causes of previous system failures.

Salerio’s technology addresses trade matching and processing issues, while SureVu helps firms avoid settlement failure as opposed to managing it after the fact. As part of a core middle office solution, these systems provide a comprehensive approach to trade management, fostering a resilient trade processing operation for sustainable growth when replacing dated solutions.

Salerio and SureVu resolve operational headaches and fears of a costly operational team that are destined to be a reality in the second half of 2024 cost-effectively and comprehensively. Salerio and SureVu do it well… and that includes the price.

If you would like to discuss any of the points raised here, please contact us at resources@corfinancialgroup.com or click here to learn more about corfinancial’s post-trade settlement solutions, Salerio and SureVu.

corfinancial implements CSDR compliance software at Man Group

M Logo

London, 15 May 2023 – corfinancial®, a leading provider of specialist software and services to the financial services sector, announces the implementation of its Central Securities Depositories Regulation (CSDR) software, SureVu®, at Man Group, a global active investment management firm with $144.7 billion of AUM (as of 31st March 2023).

SureVu® enables buy-side firms to manage failed trades and cash penalty fees, as defined by the Settlement Discipline Regime, in one single solution.

“We were impressed by the speed with which SureVu went into production. Within three months, we had 90% of our custodians and prime brokers on-boarded and expect to have 100% of these parties live by the end of May,” said Antonio Dos Santos, Head of London Investment Operations at Man Group.

“One of the big drivers to implement SureVu was the changes introduced by the CSDR, but we also saw T+1 on the regulatory horizon and knew that we needed to be on the ‘front foot’ regarding failed trade management. With 15,000-20,000 allocations per day, we needed a clear picture of our pending trades,” explains Dos Santos. “With CSDR, it is important to have failed trade monitoring and cash penalties in the same solution.”

“SureVu helps firms stay in control and manage trade settlement along with high volumes of data associated with cash penalties, applying effective governance across the processes. Companies need a solution in place quickly, without major overheads in IT and operational staff. Man Group has noted the ease and speed with which our solution starts to add real benefits to the business,” said David Veal, Senior Executive at corfinancial. “Such efficiencies are critical when considering the operational pressures envisaged when T+1 goes live next year.”

For more information on the SureVu CSDR solution, contact corfinancial at info@corfinancialgroup.com.

Baillie Gifford goes live with SureVu for CSDR compliance

London, 5 December 2022 – corfinancial®, a leading provider of specialist software and services to the financial services sector, announces the implementation of its SDR (Settlement Discipline Regime) management software SureVu® at Edinburgh-based investment manager Baillie Gifford.

Baillie Gifford is unique in the UK in being a large-scale investment business that has remained an independent private partnership, who manage and advise £228bn (US$ 253bn) in specialist equity, fixed income and multi-asset portfolios for a global client base.

“SureVu is a very user-friendly system that clearly presents data on the problem trades that require attention. The ‘exceptions’ tab and the management dashboard is an immediate time-saver for us. The visibility and prioritisation that SureVu provides has improved efficiency for us, enabling us to proactively resolve unmatched trades before they fail,” says Daryl Salmon, Equity & Bond Operations Manager at Baillie Gifford. “Additionally, the shift towards a reduced settlement period is certainly driving operational process efficiencies across the investment management industry. By onboarding SureVu it is ultimately going to make our lives easier when T+1 comes into play,” explains Salmon.

“In an ever-tightening regulatory environment, it is even more critical to closely monitor trades through the settlement cycle,” says Bruce Hobson, CEO at corfinancial. “Following the introduction of the new CSDR regulation, it is imperative to have a timely and reliable solution that enables firms to effectively govern middle office processes.”

For more information on the SureVu solution, contact corfinancial at info@corfinancialgroup.com.

How have buy-side firms adapted to the Settlement Discipline Regime?

Penalty spot kick

How have buy-side firms adapted to the Settlement Discipline Regime and what are the operational challenges that remain? By David Veal, Senior Executive: Client Solutions, corfinancial®.  

The Settlement Discipline Regime is a new obligation stemming from the European Commission’s review of the Central Securities Depositories Regulation (CSDR), which came into force on 1 February 2022. These additional regulatory processes supplement the existing CSDR protocols and focus on enhanced controls and governance around trade settlement.

In this article we highlight anecdotal thoughts and feedback received from market participants and corfinancial clients who have been working with the proposed changes. Full details of this feedback can be found in this Discussion Paper.

Failed Trade Management and T+1 Lifecycle

Buy-side firms in Europe that trade in US instruments will soon have less time in which to allocate and fund stocks, resolve any settlement issues and comply with the CSDR’s new penalties regime.

Having access to a central source of executed trade data and being able to track transactions throughout the entire securities lifecycle is vital to facilitating settlement efficiencies. Clients want robust governance with which to minimise trade settlement failure. However, there are changes to operational processes and potentially regional coverage that need to be considered in future   environments that support global trading from Asia to Europe and the US, especially when a single middle office team manages this. Firms must work towards avoiding trade failure rather than managing this after the event. Having the right tools to achieve this in a near real-time environment is essential.

Cash Penalty Fees Management

The provision of prime broker or custodian statements to support the reconciliation of cash penalty fees is improving, but there is still a way to go. The sentiment we received was that some parties still lack the full infrastructure to manage the timely provision of cash penalty fee data, so some may be choosing to absorb cash penalty fee debits rather than passing them on (although penalty fee credits are being sent). The argument is that penalty fee amounts are often too small, and net/net are not worth passing on. However, this approach certainly goes against the essence of the SDR cash penalty objective.

Automating The Processes

Some feedback focused on the most effective trade records on which to base best practice controls and governance. It was suggested that some solutions base their primary trade position records on the market side of trades, whereas solutions like SureVu® centre on the buy-side view of executed trades. There are clear differences with how solutions in the space have been designed. It is uncertain how these different models will evolve in the lead up to T+1 and beyond.

The SureVu SDR solution from corfinancial was designed differently.

SureVu clients believe it is essential to manage post execution trade settlement positions from their own record of executed trades, not data assimilated by third parties.  

For a more detailed assessment of our investigations, please download our free Discussion Paper or contact us at info@corfinancialgroup.com and we will be happy to share our thoughts and details of how we help address the SDR challenges.

www.corfinancialgroup.com

corfinancial launches penalty fee management for failing trades under CSDR

SureVu helps buy-side firms manage failed trades under forthcoming changes to the Central Securities Depositories Regulation (CSDR)

London, January 19, 2022 – corfinancial®, a leading provider of specialist software and services to the financial services sector, announces the launch of SureVu® Penalty Fees Processing and Management. 

SureVu® helps buy-side firms manage failed trades under forthcoming changes to the Central Securities Depositories Regulation (CSDR), which requires trading venues and investment firms established in the EU to improve settlement discipline by 1 February 2022. These enhancements, known as the Settlement Discipline Regime (SDR), state that where a settlement failure occurs, depositories must impose cash penalties on failing participants.

SureVu supports complex processes associated with penalty fees management, with a set of management information dashboards that summarise data and priorities. SureVu reflects accumulating net fees, in multiple currencies throughout the penalty fee lifecycle. Furthermore, users can lodge and manage appeals against fees that are in dispute. Firms are adopting these new features to ensure they have a comprehensive solution and are ready to go live on 1 February 2022.

“Now that the European Commission has postponed the implementation of the Central Securities Depositories Regulation mandatory buy-in provisions following months of speculation, there are no further reasons to delay the deployment of a solution that supports failing trades. The postponement has created an opportunity for the industry to move forward and the time for action has come,” says Bruce Hobson, CEO at corfinancial. “A comprehensive solution like SureVu will ease the many additional operational burdens that are causing such industry-wide consternation. We suspect that these concerns essentially stem from the fact that many firms are still a long way away from having a tried and tested solution that is simple and quick to deploy.”

Prevention rather than cure Is best way to tackle trade settlement management

Trade Failure

Buy-side believes prevention rather than cure is best way to tackle trade settlement.

Many people are aware that the European Central Securities Depositories Regulation (CSDR) that introduces a Settlement Discipline Regime (SDR) has been delayed by another year to February 2022. The deferment, however, should not be seen as a reason to avoid introducing better controls and processes now. On the contrary, firms are recognising that preventing trade failures rather than managing them is best practice, irrespective of SDR being implemented.

SureVu - Trade Failure