SIA asks feds to prod automation of stock trades

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June 18, 2004 (Computerworld) -- The Securities Industry Association this week asked federal regulators to require financial services firms to start moving toward a goal of affirming stock trades on the same day they're made, a key step in efforts to fully automate the trading process.
John Panchery, managing director of the SIA, said brokerages and their buy-side counterparts need to be pushed to adopt same-day trade affirmation, or the trade group will be "out of business" before straight-through processing (STP) of stock trades becomes a reality industrywide.
"We seem to always work better as an industry when we have a target date to get something done," said Panchery.
But in a letter to the U.S. Securities and Exchange Commission, the New York-based SIA recommended that same-day affirmation be implemented in phases, partly because of the system upgrade costs that would be incurred by many investment management firms.
The SIA also said it doesn't want the SEC to require firms to use a central trade-matching service. And it argued that the current three-day trade settlement cycle shouldn't be shortened now. Doing so "would divert time and attention from what we believe is the more important goal" of promoting STP, the trade group said in its letter, which was signed by Jeffrey Bernstein, senior managing director at Bear, Stearns & Co. and chairman of the SIA's STP Steering Committee.
The letter was sent to the SEC on Wednesday, the last day of a public comment period on potential ways to improve the efficiency of the trade clearance and settlement system. The SEC asked for input in March, saying it was weighing the idea of mandating reductions in the trade confirmation and settlement cycles (see story).
Tim Lind, an analyst at TowerGroup in Needham, Mass., said adopting same-day trade affirmation should be a goal because it would help reduce the risks and added costs that brokerages face if trades fail to go through.
Much of the trade confirmation and settlement process still involves faxes, phones and manual data entry. A move to automate trades and affirm them on the same day would cost the securities industry billions of dollars but would provide a return on investment through better efficiency and reduced use of paper, according to TowerGroup.
But the prospect of the SEC mandating same-day affirmation raises "a question of public policy," Lind said. "Does the government tell Ford how to manage their supply chain? There's inefficiency in the private sector all over the place."
The SIA previously advocated a reduction of the settlement cycle from three days to one, or T+1. But two years ago, it dropped a mid-2005 deadline for adopting T+1 in favor of emphasizing STP.
Not all the financial services firms that made submissions to the SEC supported the SIA's call for a rule mandating the gradual adoption of same-day trade affirmation.
For example, Michael Alexander, a senior vice president at Charles Schwab & Co., said the San Francisco-based brokerage agrees that better solutions for trade matching and affirmation need to be found. But, Alexander wrote the SEC, "Schwab does not believe that such changes can be effectively mandated and enforced." He called for more discussions to find an approach that would be "workable for all participants."

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