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Adopting the Unique Transaction Identifier (UTI) can bring the transparency the securities industry needs to avoid securities settlement fails, increase efficiency, and improve the experience of all parties across the entire trade settlement lifecycle.

Read on to learn more about the UTI, the benefits it brings, and the work ongoing to encourage its use.

Why are identifiers important?

The securities industry continues to strive for ‘zero touch’ post-trade processing. Through increased automation, firms can address a number of challenges, including thinning margins, improving customer experience, meeting settlement discipline regimes, and preparing for shorter settlement cycles.  

But automation alone is not enough. Increased transparency along the securities settlement cycle is key to removing friction. Here’s where identifiers come in. And one in particular, the UTI, can enable market participants to track securities transactions throughout the lifecycle of a trade. This has a number of benefits, including making it possible to identify trades at risk of failing and taking action to solve them

What is a CSD and what does CSDR cover?

Solving the post-trade transparency challenge

The case for a unique transaction identifier in securities.

Who in the securities value chain is impacted?

What is the UTI and how is it being used today?

The UTI is a unique alpha-numeric code comprised of up to 52 characters that is assigned to a securities trade. This enables a trade to be tracked from end to end throughout the lifecycle of its settlement. The UTI is part of the ISO stable – namely ISO 23897:2020 – and is already used in securities markets for transaction reporting purposes.

For instance, the European Market Infrastructure Regulation (EMIR) requires one of two trading counterparties to generate UTIs for their over-the-counter and/or on-exchange derivative transactions ahead of them being reported to trade repositories.

Similar UTI provisions are in place for the EU’s Securities Financing Transactions Regulation (SFTR), which obliges financial institutions to disclose details about their SFTs (i.e. securities lending, securities borrowing, etc.) to trade repositories. In the US, the Dodd-Frank Act introduced a UTI-like Unique Swap Identifier to facilitate swaps reporting.

There is a compelling business case for the UTI to be leveraged more widely in the securities trade settlement process. That’s why, together with a working group of financial institutions and several industry associations, we have been assessing the challenges and opportunities of UTI adoption and have developed market guidelines on its implementation for securities trades.

CSDR: Everything you need to know
UTI

What benefits can the UTI bring to the securities settlement process?

If adopted widely, the UTI will enhance transparency for all participants (on both legs of the settlement) in the settlement lifecycle. By having greater visibility in the transaction chain, firms can identify and resolve bottlenecks or settlement lifecycle issues more quickly. This reduces costs and operational risks arising from potential settlement fails.

The UTI will enable firms to proactively detect and manage settlement discrepancies so that problems can be resolved before they occur. This will help firms avoid financial penalties being imposed for settlement fails under the Central Securities Depositories Regulation (CSDR).

Data shows UTI adoption could result in a 50% reduction in the number of pre-settlement matching and timing exceptions that require active investigation; and a 90% drop in the number of matching or timing fails altogether.

Improved post-trade transparency also means intermediary firms are in a stronger position to field client queries about clearing and settlement more quickly. And, through consistent data, it will be easier to transmit and track transactions between traditional and next-generation technologies, enhancing interoperability and paving the way for innovation.

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Market guidelines and implementation summary for generating and communicating UTIs for settlement of securities trades
UTI
UTI

What does UTI implementation entail?

The UTI can already be exchanged between counterparties today. The most-used standards messages for trade, settlement and reconciliation, whether in ISO or FIX format, already include fields that support the communication and exchange of UTIs between systems and counterparties.

Already today some key trade matching platforms are capable of generating the UTI and sharing it with the securities buyer and seller. When no matching platform is used, buyer and seller firms typically confirm the trade allocation on a bilateral basis, for example via FIX messaging, which also supports the exchange of the UTI. Similarly on the SWIFT network, a field already exists in SWIFT settlement messages (MT54x) to pass on the UTI in the settlement flow.

Adoption is therefore focused on leveraging existing trade matching platforms. Also on getting cross-border financial messaging providers/infrastructures to support the UTI on their systems and maximise its benefits across business activities (e.g. customer support) and channels (e.g. front-end portals).

Standards adoption typically requires firms to update their internal data models and, if applicable, client and counterparty interfaces. This is to be able to ingest and transmit the identifier unchanged across the chain of intermediaries involved in the securities lifecycle. The amount of system development needed will vary from firm to firm, with some firms indicating it will take as little as three weeks.

As the securities industry sees value in the UTI becoming the norm, it’s vital that all parties involved in a securities settlement transaction use the same identifier and that market practices are clear and well defined. This is a primary area of focus SWIFT and our community of securities players have been working on with other market participants and application providers, and on which we have published market guidelines.

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Market guidelines and implementation summary for generating and communicating UTIs for settlement of securities trades
UTI

What are the next steps in the UTI adoption journey?

Whether driven by regulations or industry initiatives, adoption of the UTI has already started at several market infrastructures, with others poised to follow suit.  

Many market participants believe in the benefits of the UTI’s broad usage across securities flows. Some even see the benefits in eventually mandating its usage.

In short, the UTI is a key enabler for change, and we encourage all securities market participants to learn more about the benefits it could bring to their institutions.

Where can I find more information?

For more information on the benefits of the UTI and what it could mean for your organisation, download our report Solving the post-trade transparency challenge: The case for a unique transaction identifier in securities , or contact your SWIFT account manager.

For more information about how the UTI is generated and communicated, download the Market guidelines and implementation summary.

Swift Securities View

Detect and prevent settlement fails thanks to two-sided end-to-end tracking throughout the entire lifecycle of a trade.

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