Trade Affirmation in a Global Context

With the US moving towards a T+1 settlement cycle on May 28th 2024, affirmation is in the spotlight not just in the US, but across the industry globally. SEC rules 15c6-2 and 10b-10 will mean that affirmation plays an increasingly critical role in the search for settlement efficiency. Many global brokers may see this as ‘a US rule’, not directly relevant to their processes. However, the SEC regulation will have wider implications for global participants trading those impacted US securities.

The benefits of affirming US trades are far-reaching, going beyond a regulatory tick-box exercise for US domiciled brokers. Investment managers can affirm trades regardless of location, not only to help their US counterparties achieve compliance with the SEC rules, but also to increase processing efficiency, avoiding trade discrepancies and reducing settlement delays.

Affirmation considerations for both buy- and sell-side include:

1. Accuracy and Timeliness: Affirmation is a matching exercise, ensuring that trade details between an institutional investor and a broker’s trade confirm align. In a T+1 environment, affirmation must occur by 9pm EST, moving operational processes towards Trade Date completion. Increased trade confirm communication between both sides allows for exceptions to be recognized at the earliest possible point, enabling timely remediation.?
2. Operational Efficiency: Affirmation minimizes trade discrepancies, errors, and therefore manual intervention. Streamlined affirmation processes contribute to increased settlement rates, reduces DK’d trades and can reduce operational costs. Currently, only DTCC’s TradeSuite offers electronic affirmation with direct links to DTC for settlement.
3. Regulatory Compliance: All brokers and investment managers trading in US securities must adhere to the US T+1 settlement cycle, regardless of location. Brokers outside of the US are not directly bound by SEC regulatory requirements, but there is benefit in assisting their US counterparts in meeting SEC requirements. SEC Rule 10b-10 requires US brokers to submit written confirmation of trades to customers, which means all investment managers should receive confirms from US brokers regardless of their geographical location.
4. Industry Best Practice: Financial markets are increasingly globally interconnected. Opportunities to improve processes should be identified and implemented, regardless of jurisdiction. A well-defined and sustainable global operating model allows for the earlier identification of discrepancies between global and US processes.

In summary, affirmation will become the widely recognized market standard for both global buy- and sell-side participants in aligning with US best practice, enhancing operational efficiency, and meeting regulatory obligations.

Written by Gregory Copeland