Call for same day shares trade system

The Securities Industry Association this week asked federal regulators to require financial services firms to start moving toward...

The Securities Industry Association this week asked federal regulators to require financial services firms to start moving toward a goal of affirming stock trades on the same day they are made, a key step in efforts to fully automate the trading process.

John Panchery, managing director of the SIA, said brokerages and their buy-side counterparts need to be pushed to adopt same-day trade affirmation, or the trade group will be "out of business" before straight-through processing (STP) of stock trades becomes a reality industry-wide. 

"We seem to always work better as an industry when we have a target date to get something done," said Panchery. 

The SIA has recommended that same-day affirmation be implemented in phases, partly because of the system upgrade costs that would be incurred by many investment management firms. 

The SIA also said it does not want the US Securities and Exchange Commisson to require firms to use a central trade-matching service. And it argued that the existing three-day trade settlement cycle should not be shortened.

In doing so, said the trade group, "would divert time and attention from what we believe is the more important goal" of promoting STP. 

The letter was sent to the SEC on the last day of a public comment period on potential ways to improve the efficiency of the trade clearance and settlement system. The SEC asked for input in March, saying it was weighing the idea of mandating reductions in the trade confirmation and settlement cycles. 

Tim Lind, an analyst at TowerGroup, said adopting same-day trade affirmation should be a goal because it would help reduce the risks and added costs that brokerages face if trades fail to go through. 

Much of the trade confirmation and settlement process still involves faxes, phones and manual data entry.

A move to automate trades and affirm them on the same day would cost the securities industry billions of dollars but would provide a return on investment through better efficiency and reduced use of paper, according to TowerGroup. 

But the prospect of the SEC mandating same-day affirmation raises "a question of public policy", Lind said.

The SIA previously advocated a reduction of the settlement cycle from three days to one, or T+1. But two years ago, it dropped a mid-2005 deadline for adopting T+1 in favour of emphasising STP. 

Not all the financial services firms that made submissions to the SEC supported the SIA's call for a rule mandating the gradual adoption of same-day trade affirmation. 

Michael Alexander, a senior vice-president at Charles Schwab, said the brokerage agreed that better solutions for trade matching and affirmation need to be found.

But, Alexander added, "Schwab does not believe that such changes can be effectively mandated and enforced" and called for more discussions to find an approach that would be "workable for all participants".

Lucas Mearian writes for Computerworld

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