Buy-side blame securities identification for trade failures

Research explores the potential for a financial instrument global identifier methodology.

A large proportion of investment management firms have said incorrect securities identification is responsible for a significant portion of failed trades, leading them to opt for a standardised symbology framework.

Research from TABB Group found 40% of buy-side firms said problems with securities identification lead to between 1%-5% of trade failures, while 10% of firms said it can cause between 6% and 10% of trade failures.

In addition to the operational issues, 48% of asset managers predicted the price of symbology licenses to increase over the next two years.

However, 24% of buy-side firms expect to pay less for licences as they move towards an open financial instrument global identifier methodology (FIGI), TABB said.

FIGI is a new approach for managing instruments, reducing reference data operations spend, and dealing with the complexity caused by having to maintain multiple identifiers in multiple places.

The research found almost a quarter of asset managers are already using the FIGI framework because it is able to accurately capture change events, assist with cross-referencing and mapping and comply with regulators.

“As buy-side institutions continue to embrace the standard, we expect that to change quickly,” the research explained. 

However, costs of adopting a standardised model were cited as a barrier for some asset managers, as others stated inadequate legacy and technology systems were holding them back.

TABB Group stressed the open framework does not signal the elimination of legacy systems because it can be adopted within existing framework.

It added any cost savings realised would be the result of increased data quality impacting operational efficiencies from reduced manual mapping and cross-referencing activity.