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KPI of the Day – Investment: % On-time trade settlement rate

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trade settlements

Definition

Measures the percentage of trades to be settled on a particular day (day T+3).

Purpose

To evaluate the trade settlement according to schedule.

Recommendations

In the finance industry, one common objective is to achieve a high volume of sales, and, therefore, high profitability. Aside from the trading volume, on the one hand, the time to trade settlement is of great importance. On the other hand, regulatory changes are continuously pressuring financiers into shortening the trade settlement cycle in the industry.

It is thus imperative for financiers to make use of time related indicators, such as the % On-time trade settlement rate, to accommodate their expectations.

One key condition of efficient trade settlements is cooperation. Ensuring that financial institutions such as investment banks, their stakeholders, their customers, and their employees are reaching for the same objective, will speed up trade settlement processes and avoid unnecessary delays.

Clear and prompt communication, such as affirming trades on the day of the trade, executed through the use of technology, can also help shorten trade settlements.

Several other recommendations include the following:

  • Harmonizing inter-departmental cycles, such as expenditures and revenues, to avoid delays in trade settlement;
  • Automating trade confirmation and payments with vendors and other parties;
  • Increasing technology use and digitization to avoid human errors in settling trades;
  • Setting reminders and communicating clear schedules regarding trade settlement deadlines with the team;
  • Standardizing and consolidating standard operating procedures, to optimize trade settlement.

In the short term, arming market participants with a better knowledge of the issuance structures of different European ETFs, and of the processes necessary to move ETF shares from one CSD to another, could help. In the longer term, however, structural reforms of the type the ECB is pursuing under its Target 2 Securities (T2S) program are necessary.

When it comes to measuring this indicator, targets may vary according to regions and countries. For example, the effective settlement rate was between 96% to 100% in Paris and between 82% to 90% in London.

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KPI of the Day – Investment: $ Firm exposure
KPI of the Day – Investment: % Expense ratio (ER)

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