As financial institutions approach the T+1 settlement change, determining the right affirmations model will be critical in getting the most out of the new deadline, according to Derek Coyle, European Custody Product Manager at Brown Brothers Harriman.
When it comes to how trades can be affirmed, there are two main options to consider, Coyle said: 1) the custodian supported confirm matching model and 2) direct affirmations, also known as self-affirmations.
He explained that for confirm matching, custodians will align the trade instructions against the broker-dealer confirmations to complete the affirmation steps ahead of the DTCC deadlines on Trade Date.
“The result of the affirmation is then communicated to Trade Suite and the trade becomes eligible to settle as an affirmed transaction,” he said.
Coyle added that Confirm Matching means that the custodian will be responsible for completing.
“Depending on the custodian, they can have a slightly earlier instruction deadline (ahead of the DTCC 9PM EST affirmation deadline) to give some buffer in case of any operational support being needed,” he said.
With Direct Affirmations, firms can choose to perform the matching steps themselves by aligning their instructions against the broker-dealers confirmation, Coyle said.
The affirmation is then completed in the DTCC systems, after which the custodian will receive the result of the affirmation that can act as a trade instruction for the custodian or be matched to a secondary trade instruction sent via standard means form the client to the custodian for further processing and settlement in the market, he said.
According to Coyle, direct affirmations can provide more control over the affirmation process, which can be “beneficial where firms have end-to-end oversight over reconciliations and so on”.
“Direct affirmations also give direct access to the visibility and reporting of successful affirmation and related timestamps,” he said, adding that this can be valuable for those Registered Investment Advisors (RIAs) who need to provide affirmation timestamp reporting.
Coyle told Traders Magazine that Registered Investment Advisor (RIA) firms with regulatory oversight from the SEC will need to be prepared to provide evidence of their activity in successful affirmations, with date and timestamp records of instruction activity needed to show efforts at meeting the DTCC 9PM EST affirmation deadlines on Trade Date.
He noted that the reporting requirements do not differ between the direct affirmation and custodian supported affirmation models – both require the date and timestamps to show actions taken and the responsibility to comply with the requirement under both models will remain with the RIA.
According to Coyle, timestamps showing date and time of the trade execution steps (allocation, confirmation and affirmation) leading to successful settlement are required.
“Firms can maintain this internally or ask a third party to support the recordkeeping requirement,” he said.
DTCC are also preparing a Trade Archival tool, which can be used to source SEC required timestamps, he added.
Coyle stressed that having a Tradesuite ID (TSID) in place to correctly be identified as a trading party is key.
“DTCC have been supporting requests to provide such IDs in the past weeks and months,” he said.
“After that – the main focus would be on adjusting the timing of trade instructions to be completed before 9PM EST on Trade Date, and then engaging with counterparties to understand their alignment to be ready to affirm and settle with you according to the new requirements from the end of May,” he said.
