Settlement fails are becoming increasingly expensive. And firms around the world are putting settlement efficiency at the top of their agendas as many markets transition to shorter settlement cycles. Learn more about how Nomura Asset Management are tackling this head on by adopting the Unique Transaction Identifier (UTI) and Swift Securities View.
About Nomura Asset Management
Established in 1959, Tokyo-based Nomura Asset Management is one of Japan’s largest investment firms, with $490 billion in assets and 1,366 employees across 14 locations.
Through its extensive range of onshore and offshore fund products, Nomura Asset Management gives clients access to a number of different strategies, including equities, fixed income, high-yield bonds and alternatives.
The challenge
“Our business has expanded globally, and we’re now handling a large number of settlement instructions for equities and fixed-income products across diverse geographical regions and markets. But, as a result, the number of failed trades has also risen,” says Koshiro Abe, Head of Middle Office Group at Nomura Asset Management.
A lack of transparency and poor end-to-end visibility on the status of securities transactions along the settlement and reconciliation value chain contribute to this. As Nomura Asset Management works with a large network of global custodians and brokers, accessing real-time information and having a consolidated view of settlement statuses in a single window is not always easy.
“If there are issues with the settlement of a trade, then we’ll normally contact our counterparties, either by email or telephone, and provide them with the trade details, so they can investigate the problem. This approach can be time-consuming though.”
“This can be an obstacle when we’re trying to identify and tackle trade issues in a timely manner. The situation is also complicated by the time-zone differences, as we’re based in APAC,” adds Koshiro.
Why Nomura Asset Management embraced the Unique Transaction Identifier
Although the securities industry has improved its straight-through-processing (STP) rates over the last few decades, more work is still needed to avoid settlement fails.
The decision by some markets to shorten their settlement cycles to T+1 (and possibly T+0), and the introduction of a cash penalty regime for trade fails under the EU’s Central Securities Depositories Regulation (CSDR) is leading to even more costs when settlement fails.
Obtaining better visibility into the settlement lifecycle makes automation easier. And this can be enabled by the Unique Transaction Identifier (UTI), a unique alphanumeric code assigned to each securities trade. The UTI is not a new concept and is already used to report details of derivatives and securities financing transactions to trade repositories under existing EU regulations.
“The UTI allows us to track and monitor trades,” says Koshiro. “And combined with Swift Securities View it allows us to identify potential issues quickly before they turn into something more serious. There are also compelling risk management benefits.”
Getting started
Adopting the UTI was a relatively frictionless experience for Nomura Asset Management. It took just four months to implement, with no major costs.
“Firstly, our IT department had to familiarise themselves with the UTI’s specifications and benefits,” explains Koshiro. “Once this was done, our IT department started communicating with the Depository Trust & Clearing Corporation (DTCC) to activate UTI generation and obtain the UTI from the DTCC Central Trade Matching (CTM) platform. We also asked our software vendor, Charles River® Development, to adopt the UTI into our settlement application, which made the integration even more complete.”
Combining with the benefits of Swift Securities View
Developed by and for the financial community, Swift Securities View is a new service that allows market participants – from asset managers, to brokers, global custodians and CSDs – to track securities transactions from end to end throughout their settlement lifecycle. It leverages the UTI, which is used to link all Swift messages related to the same settlement flow.
Nomura Asset Management participated in a Swift Securities View pilot, where it immediately realised the transparency benefits.
“Through the Swift Securities View dashboard, we can identify pending instructions that need to be addressed and allow us to communicate with our counterparties straight away,” says Koshiro. As a result, Nomura Asset Management will now spend less time making inquiries to its counterparties about pending settlement instructions and avoid failed settlement.
Adoption is key
Settlement efficiencies can only be realised if more firms in the industry use the UTI and Swift Securities View.
“The UTI is a powerful tool, especially in the context of T+1. We have been asking our custodians and brokers to adopt the UTI and Swift Securities View, as this will benefit all market participants. Buy-side firms everywhere should be pushing their global custodians and brokers to use the UTI, especially as implementation is not that difficult,” adds Koshiro.
