Written for the Fintech Times by Paul Bowen (Senior Executive, corfinancial)
Many trade confirmation and matching systems end their process chain at the point where they send an instruction to a custodian bank to settle a trade in the market. I believe that there should always be continual checks in the trade processing lifecycle, so that when an instruction is sent to a custodian to settle a trade, the custodian is able to respond with messages highlighting the changing status of that trade until it settles.
If asset managers wish to significantly reduce the risk of trades failing to settle, then I believe that there is more to do to ensure that trades are effectively monitored if firms want to avoid settlement failure and not pay for it. The management of failing trades should certainly be more automated, and one has to question how many asset managers are really in safe hands. Moreover, in terms of the inexorable industry move to T+1, this issue of settlement tracking will soon shift from important to mission critical.