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Solving the post-trade transparency challenge

Solving the post-trade transparency challenge

26 January 2022 | 3 min read

How can a unique transaction identifier for the securities industry help you prevent settlement fails, reduce costs and risk, and improve your customers’ experience? Download our paper to find out.

From packages to pizzas, today we can track the status of almost anything we order. This transparency allows you to avoid surprises, quickly address any issues that arise, and provides peace of mind that things are in hand.

Now imagine if this same level of transparency was available in the securities markets.

Currently there’s no way of uniquely identifying and tracking a transaction across the various intermediaries in the securities lifecycle. As a result, securities players face significant costs and risks associated with failed trades that could be resolved more quickly, or prevented altogether, if there was a way to track their status at any point in the processing chain.

Solving the post-trade transparency challenge – The case for a unique transaction identifier in securities

The rising costs of settlement fails

In a study of 31 European countries, the European Securities and Markets Authority (ESMA) reported in 2020 that an average of 5-10% of equity settlements fail and an average of 2-4% of bond trades fail. If we take this as a representation of failed trades at the global industry level, it may not seem like a lot, but it adds up to billions in operational costs and fees.

With rising customer expectations for transparent services, and a global focus on improving operational resilience across complex, interconnected markets, the industry needs a standard aimed at enabling post-trade transparency.

The case for a unique transaction identifier

Swift is collaborating with market participants to digitally transform the securities industry and set a path for the future. The journey has been accelerated by the upcoming settlement discipline regime under the Central Securities Depositories Regulation (CSDR) and market initiatives to shorten settlement cycles to T+1.

Our discussion paper, Solving the post-trade transparency challenge – The case for a unique transaction identifier in securities, highlights the work that has been completed so far to deliver post-trade transparency at industry level. It also sets out the roadmap for industry-wide adoption of a unique transaction identifier (UTI) – based on the existing ISO 23897:2020 – that would allow market participants to track securities transactions from end to end throughout the lifecycle of a trade.

What benefits will this bring?

Together with a working group of financial institutions and several industry associations, we have been assessing the challenges and opportunities of adopting the UTI.

While an initial investment is required by financial institutions, the working group also envisages significant benefits, including:

  • 50% reduction in the number of pre-settlement matching and timing exceptions that require active investigation with a counterparty
  • 90% reduction in the number of matching or timing fails

Along with the cost savings that come with reduced investigations and fails, other benefits of industry adoption of the UTI include reduced operational risk, improved transparency across the post-trade lifecycle, improved client service, and supporting the industry’s digital transformation agenda.

Enabling industry transformation

The UTI has the potential to be a key enabler of change for the securities industry. With our community, we will continue to explore and harness the opportunities to create transparency and efficiency across the post-trade settlement and reconciliation value chain.

Find out more about the work ongoing and the benefits the UTI can bring to your organisation.

Solving the post-trade transparency challenge – The case for a unique transaction identifier in securities