Paige McCue
Enterprise Solutions Leader
As an Enterprise Solutions Leader, Paige supports the relationship coverage and business development strategies for Clearwater’s asset management division. She assists managers through systems evaluations, identifying areas to streamline and enhance trading processes, investment operations, and portfolio reporting.
Since joining Clearwater in 2017, Paige has worked with prospective Clearwater clients across the government, corporate, insurance, and asset management markets, giving her a deep understanding of how Clearwater serves the needs of asset managers and their clients.
Paige graduated from St. Olaf College in Northfield Minnesota, with a Bachelor’s degree in psychology and business management. She is an avid reader, and enjoys skiing, camping, and fly fishing in the Boise area.
The SEC recently announced the adoption of a new rule shortening the settlement cycle of securities transactions to one business day (or T+1), effective May 28, 2024. Prior to this new rule adoption, settlements were required to occur on T+2. The rule affects most broker-dealer transactions, with a few exemptions, such as government bonds, commercial paper, and some limited partnership interests.
The meme stock craze of 2021 required brokers to drastically increase their deposits with clearinghouses while they waited for trades to settle, increasing liquidity, market, and credit risks for investors. By shortening the elapsed time between transactions and settlement dates, market volatility can be avoided and there is a reduction in the risk of default by the trading counterparty.
Trade allocations for block trades, confirmations, and affirmations will now occur no later than the end of the trade date, which shortens the closing process for securities offering and the time available to prepare for closing and address errors within the settlement cycle. This will require operational behavioral changes and the leverage of automation and efficient systems.
The Importance of a Trade Date System
Clearwater has been a trade date system from the very beginning, meaning all assets are accounted for and recognized on the balance sheets on a trade date basis. This capability is a result of Clearwater receiving any pending transactions through daily feeds with custodians. Trades are offset by payable and receivable amounts to ensure that market value is accurate until the cash has posted for the transaction. Unrealized gains and losses can then be calculated from the trade date, allowing Clearwater clients a more transparent view of the portfolio holdings without waiting on the trade to settle.
Daily Reconciliation
Prior to market open each day, Clearwater’s system reconciles daily investment data received from custodians, trading systems, clients, and third-party data providers. Each trade record is matched to a custodian record and validated against available market data to ensure the trade is booked correctly. Clearwater then creates an independent record of each security utilizing that day’s security master data, projecting all future expected activity, including settlement dates. Failed trades, cash balance differences, and trade settlement issues are identified and flagged to be investigated and resolved by Clearwater’s servicing team throughout the month, providing Clearwater clients with proactive error resolution prior to period-end close.
Clearwater’s Confirm Affirm Tool
Clearwater’s Confirm Affirm tool was designed to ensure trade details are accurate prior to trade settlement, mitigating the risk of trade failures while increasing visibility to counterparties and brokers. Clearwater clients can access an easy-to-use interface to review and affirm trade confirmations sent from the Depository Trust & Clearing Corporation (DTCC) prior to settlement. Once trades are confirmed, settlement information is automatically routed to custodians to ensure settlement is timely and correct. Discrepancies can be identified as early as the trade date, allowing Clearwater clients to streamline the trade date and T+1 affirmation process and increase same-day affirmations.
Single Solution Support
The T+1 migration provides yet another check mark in favor of a single solution model where possible. A tightly integrated model, whereby a single vendor is used for order management, Confirm/Affirm, accounting, etc. eliminates hand offs and latency that can exist in a multi-vendor model. In mitigating risks of delays, firms can have confidence in a single thread to pull on to ensure their needs are met, and T+1 delivery is emphasized and synced across the vendors complete roadmap.
The good news for firms thinking about what this means for them and their current technology, there are 13 months left before adoption.
The bad news, when factoring in parallels and testing and migration, those firms that don’t feel they can adequately get to T+1 must begin evaluating solutions now.
The new T+1 settlement rule further exemplifies numerous industry trends requiring organizations to upgrade their operations and the systems they interact with. Access to daily, reconciled, trade date data in an easy-to-use interface allows teams to easily adapt to new regulations and requirements and will be crucial as the market moves toward a future potential T+0 settlement.
Interested to learn how Clearwater clients are navigating the change? Reach out here.