Is settlement unsettling?

Contributor: Tony Scianna

Have settlement fails become unsettling?

In a time when industry participants are grappling with numerous daunting challenges spanning financial regulation, cost control, and operational efficiency, settlement fails have suddenly become a newsworthy concern. Why? On February 1, 2012, the Treasury Market Practice Group (TMPG) expanded penalties to cover mortgages and agency debt fails.

The TMPG settlement fail recommendations aim to incentivize sellers to deliver securities on time to avoid creating market inefficiencies and increasing systemic risk. With each settlement fail, the financial system pays the price of heightened systemic risk; now those failing parties will pay the price with a new set of fees.  How should firms respond?

Let’s step back for a minute. We all know the importance of capturing transaction data in as close to real time as possible and being able to report on and analyze it whenever it is required. Having the same ability to manage all trade fails in a single environment should also be on a list of requirements. This will allow firms to understand their exposures to any given counterparty and to monitor and respond to any type of fail situation. Taking an enterprise-wide approach to capturing, standardizing and accessing fail data can help firms to increase transparency and reduce operational risk.

The new TMPG guidelines seem to require this type of strategy. Firms that can proactively capture, standardize and access their data in order to identify settlement fails can best position themselves to reduce their number of fails and avoid paying new TMPG fees. Being able to quickly pinpoint fail trends and control risk across the firm can help make the new settlement fail fee recommendations a bit less unsettling.

While you’re here…

• See how SunGard’s Stream Fail Monitor can help you respond to TMPG recommendations.
• Learn more about how to unlock value in your operations

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