Risk mitigation and efficiency
Thanks to the UTI, intermediaries in the trade lifecycle can track transactions from trade execution right through to settlement. This in turn allows them to identify potential issues quickly before they turn into something serious.
The UTI can give you better metrics into why problems may be happening during the trade lifecycle to help you improve existing processes.
The UTI can also promote better consensus between counterparties, as both sides to a trade can reconcile a common view of what is happening.
Get ready for T+1
Adopting the UTI enables greater automation of your systems ahead of the shift by various markets to T+1.
Shorter settlement cycles mean less time to carry out post-trade processes together with asset servicing.
Post trade is in essence various data exchanges between the trading parties, their corresponding account servicers (settlement parties), including market infrastructures, service providers and vendors. These interactions support business processes such as allocations, confirmations, matching, instructions, validations, and status and confirmation updates.
Therefore, it is critical that we reduce post-trade inefficiencies.
The primary causes of settlement inefficiency can be attributed to data quality issues, counterparty behaviour and inventory management issues, all of which arise from a lack of timely exchanges of post-trade data between the securities transaction parties.
Although existing technologies can support processes in a T+1 context, this will only work if there’s automation throughout the chain. This can be achieved by adopting the UTI.
Support CSDR compliance
At a time when the costs and risks of settlement inefficiency are rising, the UTI helps firms reduce the number of trade fails.
Fines related to the EU’s Central Securities Depositories Regulation (CSDR) have been substantial since the rules took effect. According to reports in 2022, sell-side firms were incurring CSDR fines of between EUR 3-5 million each month.
Avoiding these fines by leveraging the UTI leads to meaningful savings.
And even when fines do occur, the UTI let you accurately attribute those fines and fees to the relevant party in the transaction chain. The UTI provides you with evidence and transparency into the underlying messages and causes of failures, so you can quickly resolve any disputes and claims resulting from those failures.
Improve user experience
Improved post-trade transparency allows you to enhance client experiences too.
A UTI makes it easier for intermediaries to quickly identify all elements of a transaction and respond much faster to client questions about clearing and settlement discrepancies. Without the UTI, finding out this sort of information for clients is time consuming.
The UTI also helps you develop and enrich your product offerings, for example with self-service tools. This could usher in a number of efficiency benefits such as receiving fewer queries from clients.
The UTI as a digital enabler
The UTI drives innovation and digitalisation.
If you have consistent data at the heart of your platforms, you can better communicate information from one system to another.
As you adopt next generation technology tools and solutions, the identifier remains the same and enables effective transmission and tracking of transactions between legacy and next generation technology environments.
In short, it improves interoperability between different systems and counterparties.
It also allows for better linkages between internal applications and workflow processes.
This comes as more financial firms invest into new technologies including blockchain, AI, machine learning, and quantum computing.
The UTI ultimately benefits all parties in the transaction chain.