Electronic Trade Confirmation

Trade confirmation is an essential process within the trade lifecycle.  Its purpose is to reduce operational risk by providing an independent check of all transactions with the market.

 

 

 

This process is designed to;

• Identify any ‘out trades’, where the market does not recognise the transaction, and
• Identify any errors or differences in the commercial terms of the trade, such that these can be actioned prior to trade settlement.

Traditionally, the back-office operations team would manage the confirmation process, which would start with the generation of a paper proforma for each deal, in a format determined by the master agreement.  These documents would then be faxed to the counterparty for them to tick back and countersign, before faxing back to complete the process.

The industry standard within commodities for the paper confirms process was around 3 days – although it was not uncommon for some trades to be held up longer.

In a concerted effort to drive greater efficiencies, many firms adopted electronic confirmation processes – in which the paper proformas were replaced with data files which are sent into a central matching hub.  The hub would then perform an automated reconciliation process based on the submissions from each principal – and would be able to return a match/mismatch response within minutes rather than days.

In 2014, the European Markets Infrastructure Regulations (EMIR) went live, bringing with it new regulatory demands for European derivatives traders to confirm trades much quicker than before.

• For derivative transactions between financial firms (FC) or large non-financial firms (NFC+), ESMA imposed the requirement for timely confirmation with a target of one business day.

• For derivative transactions involving smaller non-financial firms (NFC-), ESMA imposed the requirement for timely confirmation with a target of two business days.

Given these timeframes, electronic confirmation is by far the most effective way to drive efficiencies and reduce the latency between trade execution and confirmation.  However, there are a number of aspects to consider, in order to incorporate electronic matching successfully;

• Which eConfirmation platform should I adopt?
• Are my trading partners available for matching on my chosen platform?
• How will I transmit my trade data to the chosen platform?
• How will I handle match/mismatch responses?
• How will I handle lifecycle events, modifications, cancellations, novations?
• Will my chosen platform support my physical and financial trade confirms?
• Is my chosen platform limited to specific markets?
• How much will my chosen platform cost to license?
• Are there any ongoing costs for using the platform?

eConfirmation represents a valuable potential saving of effort and money for back office operational teams, but implementation is not always easy and straight-forward.

How We Can Help

One of the operational support services we offer at Belbridge Consulting is the managed eConfirmation set-up and onboarding process.  This will include the initial cost/benefit analysis and the detailed portfolio analysis tasks – to ensure that you have 100% product coverage when onboarding a new platform.

We will provide full details of what is needed to integrate your systems to the eConfirmation platforms and how to handle the operational data flows to ensure a seamless integration.

We’ll also look at the changes to your operational processes and ensure you have sufficient risk controls in place to ensure your transition is as simple as possible – allowing you to recognise the cost savings and operational benefits, without any unexpected operational burdens.