Market participants should move towards confirming trades within 15 minutes of execution to better manage their costs and risks, according to a whitepaper from post-trade services provider Trax.
MarketAxess-owned Trax said the industry must review its operational activities throughout the trade lifecycle in order to control risks.
Regulation has become a major driver for change, particularly Europe’s move last year to settle on a T+2 basis rather than T+3. The US is expected to follow and is currently working towards a timetable to implement T+2.
The result of the compressed settlement schedule means firms need to identify and correct trade errors earlier in the trade lifecycle. Failing to spot problems early enough could lead to failed trades and fines levied by regulators.
Camille McKeley, post-trade product manager at Trax, said: “Firms now need to identify and correct trade data errors earlier in the trade life cycle. Trax is delivering solutions to its community of clients to improve controls and deliver more accurate datasets, thereby meeting the increasing demands for effective operational risk management.”
However, Trax adds that the problem of trade confirmation goes beyond simply complying with settlement rules. Trading decisions based on incorrect data can have a major impact on risk levels and costs. Unwinding errors once they are discovered can be time consuming and disruptive and systems that can prevent errors from occurring in the first place can be beneficial to firms.