DTCC’s Match-to-Instruct workflow: Vital for T+1 trade settlement in the US

Key Takeaways

• Global trend towards shorter settlement cycles requires streamlined post-trade workflows
• The DTCC’s Match-to-Instruct (M2i) workflow has been crucial to supporting T+1 settlement in US markets.
• Collaboration amongst stakeholders is key to ensuring that market participants can reap the benefits of shorter settlement.

As global markets move towards shorter settlement cycles, market participants must ensure that their systems support rapid, streamlined workflows throughout the order lifecycle. In particular, middle-office systems need to support rapid order allocation and trade affirmation to allow settlement to be completed as quickly as possible. Middle-office teams must also be able to handle complex allocation requirements from the buy-side, and handle errors or exceptions quickly. To create a straight-through middle office process, trade allocation, confirmation, and affirmation need to become a single continuous workflow.

Post-trade processes

In the US markets, the post-trade process is long established and standardized. Following trade execution, the first stage is confirmation. The broker-dealer generates a trade confirmation record that includes key details such as the date, time, security type, quantity, price, and settlement terms. The broker-dealer then sends this record to the counterparty for affirmation. The counterparty (for example, an institutional investor or their representative) reviews the trade confirmation details and confirms their accuracy, ensuring both parties agree on the specifics. In the US, this phase is key for meeting T+1 settlement deadlines and must be completed by 21:00 ET on the trade date to fulfill the settlement cycle requirements.

The final stage is trade settlement. Both parties prepare for the transfer of securities and funds, updating records and ensuring all necessary documentation is in place. On the settlement date (the day after execution), the buyer makes payment, and the seller delivers the securities. The trade is considered final once the payment is made, and the securities are transferred. The buyer becomes the official holder of the securities.

The role of the DTCC

The Depository Trust & Clearing Corporation (DTCC) plays a pivotal role in the trade confirmation, affirmation, and settlement processes in the US equities markets. The DTCC works closely with market participants to improve affirmation rates and ensure readiness for regulatory changes, such as the move to T+1 settlement. The DTCC has a range of systems and subsidiaries to help market participants automate their workflows and streamline the post-trade process:

• The DTCC’s TradeSuite ID system handles the electronic confirmation and affirmation of trades. This system ensures that trade details are confirmed accurately and affirmed by both parties before settlement.
• The Continuous Net Settlement (CNS) system nets trades to reduce the number of transactions and the associated costs, making the settlement process more efficient.
• The ALERT system is a global online database of standing settlement instructions (SSIs), which enables automatic trade enrichment.
• The Depository Trust Company (DTC), a subsidiary of the DTCC, is responsible for the actual settlement of trades. It facilitates the transfer of securities and funds between parties.

Match-to-Instruct: streamlining and automating post-trade processes further

In response to the move towards shorter settlement cycles in North American markets, the DTCC introduced a new Match-to-Instruct (M2i) workflow. M2i is designed to streamline and automate the post-trade process by further integrating separate elements of the affirmation workflow. The M2i workflow uses CTM, ALERT, and TradeSuite ID together to establish a connection between CTM and TradeSuite ID which can automatically trigger trade affirmation, based on the match in CTM. Affirmed confirmations can be distributed to all parties involved in the trade, including any interested third parties indicated on the confirmation.

By automating the affirmation process, M2i reduces operational friction and frees up time and resources for investment managers and custodians. Ultimately this increases same-day affirmation rates, reducing settlement risks and costs. The workflow is crucial for achieving T+1 settlement in the US by enabling near 100% affirmation rates by 21:00 on trade date.

Match-to-Instruct is an important support for successfully achieving T+1 settlement in the US markets. However, to be truly effective, M2i and other similar innovations need support from the wider trading ecosystem. ION has deployed updates to our Fidessa Middle Office module to allow our customers to integrate M2i seamlessly into their existing workflows.

Collaboration is key for everyone to benefit

As markets around the world look to reduce the time between execution and settlement, technological innovations like M2i will be crucial to achieving secure, reliable, and efficient processes. It’s also important for technology vendors and stakeholders across the markets landscape to work collaboratively to support such innovations, to ensure that take-up is as wide as possible, and that all market participants can reap the benefits of shorter settlement cycles.