Settlement efficiency is a central topic of discussion for regulators in European markets and improving it remains a top priority. Their key objective is the safe and efficient operation of the financial markets and trade fails create both uncertainty and risk. The CSDR Settlement Discipline Regime introduced in 2022 brought the imposition of cash penalties to incentivise the market to improve efficiency.
Boosting settlement efficiency
With Europe expected to follow the US move to T+1, there is an increasing need for resolving issues in near real time on T+0, more process automation, and more efficient workflows across middle-office, back-office and local markets.
We recognised the challenges of improving settlement efficiency, and in 2023 created a working group with members of the Euroclear Bank User Committee to focus on settlement efficiency and propose steps we can take as a community, collectively to improve settlement efficiency.
The working group analysed the huge amount of data Euroclear has on settlement efficiency throughout the settlement life cycle, identifying the key pinch points in the process, but also the best practices employed by those organisations that outperform their peers and have minimal fails.
Over the coming months, there will be a series of activities to raise market awareness of these drivers, their underlying causes and how they might be addressed.
The first steps in the settlement process are validation and matching.
The two parties to the transaction independently enter the key parameters into their systems and the two sets of data – once they reach the CSD - are compared, validated and matched. If the required parameters match, the settlement process will progress smoothly. If there are differences, they must be resolved before the transaction can settle. This is the first key pinch point in the process.
The working group found matching to be a major cause of failed transactions - accounting for almost 50% of all CSDR penalties imposed.
The following video explains their findings, the drivers for matching fails, the practical steps that can be taken to reduce them and reveals the matching efficiency benchmarks we want to help our clients achieve in 2024.
Matching guide
For more information on our matching benchmarks and the best practices mentioned in the video, we have produced a matching guide, available here.
If you are an existing client, contact your Relationship Manager to discuss the initiative.
If you are new to Euroclear, contact us to learn about the full range of services we can offer to help you manage your business.
Matching is simply the first step in the settlement journey, but it is a vital first step as subsequent steps cannot proceed until it is successfully completed. Improving matching efficiency will have a large impact on reducing CSDR penalties but the aim is to reduce them to an absolute minimum.
Future articles and videos will focus on subsequent steps in settlement process and how they, in turn, can be improved.
Join us in this initiative to drive up settlement efficiency across our community, reducing both the uncertainty and risk, and importantly reducing cost too.
