Custodians urged to take up SSI challenge
Custodians, adopt a standardised utility model for SSI management!
Custodians are being urged to adopt a standardised utility model for the management of standing settlement instructions (SSIs) to resolve ongoing challenges such as high costs and risks for buy-side firms.
In a survey published today (26 Sept), Standing Together: An Instruction to the Investment Industry, US-based research and consulting firm Tabb Group said SSI operations continued to be “a cumbersome and expensive distraction” for the buy side despite the fact that nine in ten firms were already using a central utility model in some way.
The survey of representatives from 150 global investment management firms reveals that missing and incorrect SSIs cause at least 20 per cent of all trade fails, amounting to significant operational costs and risk exposures for investment management firms. Nearly every firm surveyed experienced some level of trade fails due to incorrect SSI information.
By centralising and standardising SSI management, investment managers could reduce the time and costs spent on exception handling by as much as $1-$2 million per year in operations costs.
Although the majority of investment management firms still choose to self-manage SSIs, opinion across the industry is nearly unanimous, according to the survey, that custodians can and should maintain SSI data on their buy side clients’ behalf.
“Investment managers can now hand over operational responsibility to custodians via platforms that collaboratively link all parties to a trade, or outsource the process entirely to a non-custodian third party,” said the report. As the utility approach becomes even more pervasive, investment managers will expect custodians to leverage the resulting efficiencies and take over management of this non-core (to an investment manager) function. “With the methodical approach the industry is taking to address certain legacy issues and roll out the central utility model to ever-expanding numbers of instruments and geographies, a pain-free SSI vision is at hand.”
Tabb Group says investment managers globally are making their wishes known to their global custodians and are pushing them to build on the industry’s collaborative data management and communication platforms. This will enable the firms to offload SSI maintenance while retaining data ownership and ensuring the custodian manages the SSIs to their requirements.
Paula Arthus, managing director and head of Omgeo and data services, a subsidiary of the Depository Trust and Clearing Corp (DTCC), which commissioned the report, said: “We have always recognised that the burden of managing SSI data has been challenging for the buy side. It is a labour-intensive task, which can be more efficiently managed by the global custodian community.”
