The Insight Track: SSIs - the red card risk in T+1 settlement

In this Insight Track, Bill Meenaghan, CEO of SSImple and a Manchester United fan, discusses why Standing Settlement Identifiers (SSIs) are a critical factor of T+1 readiness. 

He explains why SSIs are a critical ‘fitness measure’ for T+1—and why all players on a trade settlement team, including investment managers and brokers, need to review them, not just custodians as goalkeepers.

Transcript

What are the parallels between SSIs and football/soccer?

Bill: If you look at SSIs in a team as one context, football is probably a good analogy for it, because we all need to work as a team. There are different constituents in a team that all must play together. Manchester United have not done it very well this year, but the team is supposed to pull together and try to win the game. I think with SSIs, you've got the broker dealers, the custodians, and the investment managers, if we all pull together and do the right things, we should be able to get to the point where we've automated SSIs, and that should deliver a very positive result.  

Why are SSIs the biggest causes for failed trades, and what can automation through DLT help achieve?

Bill: Normally, around 30% of failures are attributed to SSIs, the other 60% to inventory, and 10% to economics. The inventory number may actually be SSI-related as well. For a portion of it, the securities aren't in the right place, so therefore the trade fails. As you look forward to DLT, and then how DLT can help, SSIs lend themselves very, very nicely to DLT. It allows the creation of a single source of the data and then allows it to be shared with whoever needs it in an automated way to ensure the data is going to the party that should be using it.

So, with SSImple, we've allowed for that where custodians can store the data. They can permission it to the buy side clients, who can then control it and permission it to their broker dealer counterparts, but also to third parties, which is something that doesn't normally happen today. And that's quite important, because if you can automate that process, if you think about cash exercise, the counterparty has to call back to check that all of the bank account details and everything is correct, but they can't call back the person that gave them the data there. So, it's a very cumbersome process, and can also take a lot of time.

What are the challenges firms face for T+1 readiness, and how can they approach automation to overcome them?

Bill: We've spoken to many custodians, and there is a view that solving the SSI problem is massive, but I think the first thing to say is, it can be relatively straightforward, and it is possible to do. What we've done with one custodian is we've taken their data, which is in different systems today, we've been able to centralise that, put a very strong rule base around it to make sure that the data can't be wrong, even down to the particular level within the SSI. We can be very precise and help that custodian manage the data, we're permissioning it out to their investment manager clients or their buy-side clients, who can then control and permission it out to their counterparties and third parties. So, what we want to do is replicate that across the industry.

As we look at UK T+1, the Financial Market Standards Board has recommended that SSIs should be automated. That's their core principle one. We were recently at the T+1 implementation kickoff and Sasha Mills, from the Bank of England, was also there, and she gave a strong backing to the work the FMSB has done and what they are promoting. She also recommended that firms should be looking at their processes to try and automate SSIs as much as they can. That's something we endorse, and we're here to help. Back to the original point, it may seem like a daunting prospect to try and centralise it, but the answer should be SSImple. 

The Insight Track humanises storytelling by connecting industry leaders’ passions with purpose to reveal authenticity and enrich their content and communication. In the show, I model authenticity by connecting my love of running with that of helping financial industry leaders publicise themselves and their insights through their passions.

Do you have an idea for the Insight Track? Email janet@thoughttreelab.com