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This article provides information about Post-Trade Risk on WorkX, available to U.S. equities trading clients.
Elevated trading volumes, market volatility and active retail participation in the equities markets, alongside disruptive contingent events, bank failures and global wars, can create stresses and increase settlement risk – the risk of a trade counterparty failing to deliver a security, to even a successful clearing and settlement process.
While the transition from T+2 to T+1 settlement creates significant risk reductions and operational efficiencies, in other ways these regulatory changes may also have unintended risks. With shorter cycles, there is less time to deal with exceptions, which can increase operational and settlement risk, particularly for the correspondent clearing firms, which clear and settle trades after a broker executes the transaction. This risk impact is compounded when the correspondent clearing firm operates with legacy tech stacks and relies on manual processes. In a recent Value Exchange survey regarding readiness for T+1, 30% of respondents stated that their current manual processes were a challenge. A 2022 Firebrand Research/Torstone Technology research paper estimates that 81% of banks and brokers in the U.S. and Canada use manual processes or home-grown systems to support some of their post-trade processes. More risk for correspondent clearers is why having real-time risk controls in place is more important than a few years ago, when volumes, volatility and share of total market volume from retail investors were lower.
For equities trading clients, the recently launched cloud-based Post-Trade Risk on WorkX offers modular trade reporting workflow, compliance and risk management services on a cloud-based tech stack to simplify risk management and post-trade for banks, brokers and clearing firms. It also provides protection to clearing firms and brokers with real-time trade monitoring on Nasdaq Equity Exchange and FINRA/Nasdaq TRF markets.
With WorkX, clearing firms’ can set aggregate trade, per trade, and max trade limits and clearing brokers and their correspondents garner real-time visibility into limits settings and utilization, which tracks not only risk exposure but also enhances correspondent trading power. Nasdaq offers user-friendly and transparent controls which allow participants to easily manage them. Risk controls allow multiple safeguard layers with user intervention and / or defined system trade action.
Post-Trade Risk on WorkX risk monitoring and controls are designed to integrate with a user’s own tech stack and workflow and can be layered with an existing risk management platform. Post-trade risk provides flexible alerting via email, API and user interface notifications to clearing firms, correspondent brokers and their counterparties. Alerting provides seamless limit breach investigation and allows correspondent clearers and brokers to review activity and take action in FINRA/Nasdaq TRF trades. As monitoring and alerting information is more widely available, it enables clearing firms and correspondents to be more responsive to risk levels.
Modern risk management is a highly collaborative exercise. Forward-thinking companies know that risk management cannot be confined to a single department or supported in operational silos—risk intelligence and ownership of risk must be shared.
Amy Kohn is Principal Product Manager of North American Markets at Nasdaq.
Learn more about WorkX here or by contacting US Equity Product Management.
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