Hedge funds and investment managers have historically relied on end-of-the-day independent batch processing for sending trades to prime brokers (PB) and custodians, with exceptions being dealt with the following day. Fixing the issues typically requires the investment manager to either cancel and reinstruct the trade or amend the instructions directly at the PB. In a recent SS&C survey of prime brokers and custodians, the feedback provided was that firms would be pushing their clients away from any non-systematic trade communication. With the upcoming move to a T+1 settlement cycle, there is a need to modernize and streamline the trade communication workflow to reduce exceptions and ultimately limit settlement fails.
The two key areas of trade communication that need to be enhanced are accuracy and timeliness of instructions.
Linking trade communication to trade confirmation and ensuring trades are confirmed prior to being communicated, investment managers have seen a significant reduction in the number of trades that need to be rebooked. Through utilizing products such as DTCC’s CTM, investment managers are also able to apply the settlement instructions provided by the counterparty in their trade messages, thus further reducing the number of instructions that need to be updated for settlement mismatches.
Communicating trades more frequently to PBs and custodians allows a manager more time to address any exceptions minimizing the impact on trade settlement. PBs will also be able to affirm trades ahead of the earlier affirmation cutoff, 9 p.m. Eastern Time on the trade date. However, being able to send trades earlier is rarely as straightforward as adjusting the frequency of file delivery. Often, a firm will need to review the timing and workflow around how executed trades are being allocated and when post-trade compliance checks are being completed to improve timing.
While some managers choose to develop and enhance internal applications, more and more firms are looking to technology and operational service providers with the infrastructure and expertise to support their trade communication workflows, such as SS&C. To learn more about how SS&C can help you conform to the T+1 settlement cycle, download our "T+1 Settlement Frequently Asked Questions" guide.