While the securities industry has improved its straight-through-processing (STP) rates over the last few decades, more work is still needed.
A lack of transparency and poor end-to-end visibility on the status of securities transactions along the settlement and reconciliation value chain continue to be a challenge.
This creates inefficiencies and costs at a time when margins and revenues are squeezed.
This is compounded further by regulatory and market initiatives, such as the EU’s Central Securities Depositories Regulation (CSDR) and the decision by some markets to shorten their settlement cycles to T+1, and possibly even T+0.
The Unique Transaction Identifier (UTI) can play a vital role in helping the securities industry overcome some of these hurdles.
What is the Unique Transaction Identifier (UTI)?
The UTI is a unique alpha-numeric code made up of 52 characters that is assigned to a securities trade.
It’s part of the ISO stable – namely ISO 23897:2020 – and is already used in securities markets for transaction reporting. Under the European Market Infrastructure Regulation (EMIR), for example, one of two trading counterparties must generate a UTI for their over-the-counter (OTC) and/or on-exchange derivative trades, ahead of them being reported to trade repositories.
Similar provisions for the UTI are in place for the EU’s Securities Financing Transaction Regulation (SFTR), which requires firms to disclose details about their securities financing trades to trade repositories.
What issues does a UTI in securities settlement solve?
According to the European Securities and Markets Authority (ESMA), an average of 5% to 10% of equity settlements fail, and an average of 2% to 4% of bond trades fail.
This may not seem like a lot, but it adds up to billions in operational costs and fees every year. The situation is not getting any better with late settlements and cancellations becoming more frequent in 2021 and 2022.
The costs of trade fails impact everyone throughout the settlement chain, but it can also cause problems more widely in securities lending and repo markets. Lending activity, for example, can actually slow down if a cascade of settlement and collateral movements are impacted by a large trade failure.
Increased transparency provided by the UTI can help to solve this.
How is the Unique Transaction Identifier used in securities settlement?
The UTI does not replace existing message reference(s) used today to uniquely identify or refer to a securities message (instruction, notification, status report, etc.).
Instead, the UTI provides a reference interlinking all related messages in the same end-to-end settlement transaction, which every party in the chain can use to refer to the transaction.
This means that a post-trade platform or one of the parties initiating a securities transaction will generate a unique identifier – the UTI – as part of the securities allocation / confirmation process.
This unique reference – the UTI – will be the same throughout the lifecycle of the securities transaction’s settlement and will be maintained throughout most lifecycle events such as amendments or version changes.
Industry-wide adoption of the UTI will allow securities tracking from end to end throughout the trade lifecycle.
Who generates the UTI in securities settlement?
According to market practice, generation and initial exchange of a UTI for the settlement of a securities transaction occurs as part of the post-trade communication via:
- The post-trade allocation process between trading counterparties; or
- In case there is no allocation, as part of the trade execution or confirmation.
Its generation occurs with the platform or venue that supports post-trade, or, in case of a bilateral trade, with the instructing party, executing party or their service providers.
|Electronic post-trade platforms generating the UTI
|CTM from The Depository Trust & Clearing Corporation (DTCC)
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How Swift Securities View uses the UTI
The UTI is also being leveraged by Swift Securities View, a service developed together with the industry and brings new levels of transparency to post-trade processing. The service is key to reducing settlement fails, which are costing the industry billions each year, and helping prepare for the global move to shorter settlement cycles.
Swift Securities View leverages the UTI to link all Swift messages related to the same securities settlement flow in a transaction chain. A number of post-trade platforms including CTM from DTCC support the service by generating and communicating the UTI at the moment of trade execution/ allocation to both parties in the trade.
As a result, all participants in the transaction – from asset managers, to brokers, global custodians and CSDs – have access to automated tracking on both sides of the transaction.