Data Challenges Roundtable Summary & Recommendations

Data Challenges Roundtable Summary & Recommendations

Posted on December 11, 2023 by Cathy Wright

A T+1 Forum Event hosted by EY

Data Challenges Roundtable Summary & Recommendations

 

In the fourth of the ISITC Europe T+1 Forum series of roundtable discussions, industry experts focused on data challenges and the role data plays in efficient settlement for near/real-time processing.

This post-event summary examines the current and immediate issues that market participants are facing, and what the industry participants could and should do to transition to T+1, through innovation and re-engineering of existing technology..

The conversation began with the roundtable members discussing their key issues with the current state of data management and utilization. The discussion opened by looking at the importance of accurate and standardised settlement instructions, and the problems arising from current systems that run in overnight batches; switching from batch to real-time processing is a long overdue transition many firms are still grappling with. Solutions or new technology to be introduced was unlikely before the North American markets move to T+1 in May 2024, but should form part of a future systems development  strategy.

To facilitate the transition to real-time processing and settlement, having accurate and readily available data is vitally important. The group identified data staleness, management, access and dissemination as the most impactful issues facing their organisations and processes today. Agreeing that these were a major blocker for real-time transition. The group discussed batch processing of SSIs to illustrate this issue. SSIs are:

1. seldom and more importantly, manually changed.
2. stored in multiple places and formats.
3. managed by multiple firms.

As a key data point in the settlement lifecycle, these issues make it the most impactful too, however over many years the market has failed to make significant improvement despite many attempts at providing central sources for everyone to use. Commercial firms offering SSI solutions should be encouraged, but with interoperability and standards mandatory.

In order to streamline the process and reduce fails, SSIs would ideally be managed in a golden source utility and communicated in a standard and electronic form. This will require collaboration with custodians, brokers, and buy side firms, however it’s unclear if T+1 alone without regulatory enforcement will drive a transformational change vs the incumbent processes.

The adoption of a DLT system or other modern real-time access technologies were thought to be a potential solution for SSIs and other data requirements involved in the settlement processes.

The group noted however, that there are existing solutions in the market that are not being used to their full potential despite being available for decades. Furthermore it was underlined that  any new SSI solutions will have to be interoperable since there will always be distinct favoured solutions between players.

The discussion highlighted the general need for the industry to proactively adapt to new processes, innovate, and invest in managing instructions efficiently, rather than reacting to a crisis. The suggestion to use AI systems for predicting successful and, more importantly, unsuccessful matching and settlement was discussed. This could enable firms to review and update trades in real-time, and thus improve settlement.

One thing which was very clear – there is no time for any major change before US moves to T+1 – but if UK settlement rates are to be improved, the industry will need to keep focused on this issue while there is still time.

The Swift UTI was discussed and the group agreed that it has potential to be a platform not for just monitoring settlement progress, but also could be built upon to drive data standards like LEIs and other identifiers plus SSIs.

Resulting recommendations from the discussion

• Firms on the buy side, brokers and sell side must introduce continuous data validation, ownership and maintenance through modern technology solutions and processes. Utility solutions like Swift UTI needs assessing. These solutions can track the data to ensure that it is correct at the point of settlement.
• Each firm should create and implement a clear data strategy, to ensure ongoing data completeness and quality at all times. Firms should manage data better only consuming / broadcasting data that they need and with regular data culling introduced .
• Firms should invest into work orchestration / AI technologies to increase throughput and pro-actively alert member firms of reference data issues causing fails.
• Bring clients into the journey and jointly perform root cause analysis and define remediation steps. Clients should be encouraged and able to maintain their own data taking responsibility from their agent.
• Legal Entity Identifiers and other standards should be mandatorily used by all market players under regulatory requirements.
• Firms need to start analysing manual touchpoints and define remediation plans, as it is non-STP activities requiring human intervention that is the main bottleneck to shortening the settlement lifecycle.
• There should be more collaboration between all members across the capital market industry domestically but most importantly internationally.
• The international capital markets should define and agree on a set of data standards that span all data instrumental in the settlement of the transaction. Data standards should include Capital Markets Payments and FX. Standards should be an industry-wide international accord that will benefit all players and improve settlement efficiency costs and risks for investors.

The ISITC Europe data forum has begun the process of recruiting members for the creation of an international Data Accord and is accepting submissions for participation from Capital Markets organisations. If you are interested in participating in the Data Forum please click the link to submit your application to join the forum.

ISITC Europe CIC would like to thank the T+1 Forum secretariat EY for hosting this series of micro-market roundtable discussions.