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SSI management: the next step in centralized utility adoption
We can finally say that a centralized utility model for SSIs has become standard operating procedure for the financial services industry.
Bill Meenaghan 2 Mar 2017

The data is in: 90% of over 150 long-only and hedge fund managers responding to a recent industry survey already use a central utility to manage standing settlement instruction (SSI) data, instructions detailing place of settlement and bank details among other things that have been agreed in advance and are used every time a trade is made. Based on this data – and anecdotal evidence from industry events and client meetings – we can finally say that a centralized utility model for SSIs has become standard operating procedure for the financial services industry.

The long road to centralized utility adoption
SSI management is carried out on a firm-to-firm basis and has traditionally been a manual process. Against this backdrop, achieving all-but-universal central utility model adoption is the culmination of recognition that there is no reason for trade failures to be caused by inaccurate SSIs.

But while the adoption of a centralized utility model puts the elimination of SSI-based trade fails within reach, there is still more work to do. Survey respondents highlighted that 19% of trade fails continue to arise from SSI issues.

The price of these fails is not insignificant, with the average mid-sized IM facing anywhere from US$1 million to US$2 million in avoidable operational costs per annum as a result.

Devil in the details: full benefits of centralized utility not materializing
In our view, the key reason that SSIs continue to cause settlement failures is that, although the “golden copy” of SSI communications protocols has shifted to a centralized utility, the majority of IMs – 72% of respondents who use a centralized utility – continue to maintain and process SSI data held in the utility themselves. Another 18% have outsourced management of their SSI data completely to a custodian or third party.

This fractured state of SSI maintenance limits the potential for the full benefits of the centralized utility model.

But this situation is ripe for change. Over one quarter of respondents who are managing SSI data themselves using a centralized database and two thirds of those who are managing SSI data manually in-house indicate that they are unhappy with their current practice and intend to change their SSI management strategy in the near future.

One potential approach for IMs looking to improve on their current practices is represented by The Depository Trust & Clearing Corporation (DTCC)’s global Omgeo ALERT SSI database. The Global Custodian Direct (GC Direct) feature allows IMs and global custodians to take a collaborative approach to SSI maintenance within the framework of a centralized SSI Utility.

What the future holds
The potential benefits of adopting a centralized utility for SSI management are manifold. When asked to rank the potential benefits, the top three cited by survey respondents were:
• Higher quality data – which can potentially eliminate SSI-related trade fails due to incorrect or missing settlement information.
• Efficiency/faster trade processing – which may increase the trade volume an IM can process without a complementary increase in trade fails.
• Increased levels of standardization – which contributes to data quality and settlement speed, as well as allows IMs to process a wider variety of asset classes.

However, despite having achieved virtually universal adoption of the centralized utility model, full recognition of these benefits remains far from guaranteed. Full recognition depends on achieving critical mass so that the network effect pushes IMs who continue to resist the centralized SSI management model to join the fold. DTCC has made significant efforts to get IMs into the centralized utility model, recently starting a program called ASSIST where smaller clients who do not see the benefits for them can still have their data added to Omgeo ALERT for free following registration. The IM won’t get access to Omgeo ALERT but it will allow the sell-side to get their SSI data in an automated way.

That being said, among those who do not plan to change their practices, the key reason cited was that they are unable to hand SSI management over to a central utility because their custodians are unwilling or unable to take ownership of the process.

That position is starting to change dramatically now. As of the end of 2016, two custodians were live with GC Direct and several more have nearly completed building to GC Direct. At the same point in time, 5.8% of ALERT was managed via the GC Direct process, representing significant growth from less than 0.5% just one year earlier.

We believe that this points to the next step in financial services industry evolution in the post-trade space. The potential for a trade ecosystem that is essentially free of settlement instruction risk depends on it.


The 20-page, eight-exhibit report can be downloaded at here.

Bill Meenaghan, Executive Director, DTCC’s Omgeo ALERT

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