Ongoing regulatory compliance and cost pressures, combined with increasingly large transaction volumes and accelerated settlement timeframes in the US cash securities market, have created an opportunity for the financial services industry to re-assess and improve its approach to post-trade processing, an area that can often be manual. Within this evolving environment, post-trade automation, efficiency and accuracy must be prioritised—and this is where standards are key. 
Standards, such as legal entity identifiers, ISO20022 and FIX protocol, have long helped ensure industry agreed-upon formats are used to provide transparency and a common framework for market participants. While new for cash securities transactions, Unique Transaction Identifier (UTI), a unique alpha-numeric code comprised of up to 52 characters, is one such standard that has been implemented and leveraged successfully for almost a decade in the derivatives space.
Stemming from the 2009 G20 Pittsburgh Summit agreement to mandate reporting of transactions to registered trade repositories to increase transparency in the OTC derivatives market for the identification and mitigation of systemic risk, the Commodity Futures Trading Commission (CFTC) introduced two-element identifiers called Unique Swap Identifiers (USI) for trade reporting in the US in 2012. CPMI-IOSCO then created the single-element two-part UTI—modelled on the USI but expanded to make it more generic. Similarly, as of 2020, the EU’s Securities Financing Transactions Regulation (SFTR), which obliges financial institutions to disclose details about their securities financing transactions (SFTs) to trade repositories also began mandating the use of a UTI for every SFT.
The benefits of creating and utilising a UTI in the securities market are significant. First, a unique identifier across all platforms could enable greater visibility into a transaction’s progress, enabling all parties in a transaction to track the status of any given trade at any given time and allowing for the efficient identification of problem trades to counterparties. With a UTI in place, communication around issues surrounding a problem trade could be exchanged between counterparties more quickly, and the exception management process could be expedited, enabling a swifter achievement of settlement finality.
Second, the acceleration of settlement finality — made possible by UTI — can improve operational resilience and help mitigate operational risk. Greater settlement efficiency will be advantageous to market participants as they navigate the recent acceleration of cash securities settlement cycles in the US, Canada and Mexico and in additional global markets which will aim to follow. Including a UTI onto settlement instructions will help facilitate efficient central securities depository (CSD) matching as it would increase the speed at which trade instructions can be identified and paired at CSD level.
Third, a UTI could significantly reduce the costs associated with trade status communication between counterparties. The current communication process of identifying the status and location of a trade is highly manual and time intensive, as it requires all the information pertaining to that trade, including the ISIN and the quantity of securities traded. This benefit is pronounced in EMEA due to the decentralised nature of Europe’s cash equities markets. Tracking down a transaction in European markets is significantly more challenging than in other markets, such as across Asia and the US, given that there are almost 40 CSDs and over 200 custodians/sub-custodians in Europe alone.
Lastly, workflow processing could significantly be improved as the UTI will allow trade exceptions to be identified in a timelier manner as the UTI would be the only data point needed to identify the problematic trade. All parties to the transaction, whether that be an investment manager, executing broker, or custodian, would all have access to the UTI. Exception management will become crucial as global securities markets move towards a T+1 settlement cycle.
On the surface, introducing new standards like the UTI to enhance post-trade operational processes may seem like a no-brainer, but it will require already constrained resources and potentially budget to implement. For example, many legacy mainframe systems used by some settlement chain participants, i.e. local custodians, do not support a 52-character field such as that used by the UTI. Making changes to these legacy systems can not only be difficult but also expensive.
For a UTI system to be workable and deliver the intended benefits, it is critical that all post-trade entities be able to both deliver and accept a UTI. A proper workflow means the UTI would be included for the block trade with each trade allocation assigned its own independent UTI. Any settlement instruction message type would need to include that UTI and the receiver of the settlement instruction – the custodian, agent or CSD – needs to be able to ingest the UTI from the message. Along with receiving the UTI, the parties to the instruction also need to be able to persist the UTI for outbound messaging to ensure trade status messaging can be tracked.
The good news is that progress is underway. The Depository Trust & Clearing Corporation (DTCC), Swift and Hong Kong Stock Exchange are some examples of industry market participants working together to support the introduction of the identifier. These market infrastructures will also adopt the standard within their various services and solutions to enable market participants to effectively communicate the identifier with their counterparties and clients.
DTCC’s global trade agreements platform, CTM, now generates a UTI, enabling it to be assigned at the allocation level with the first entity in the trade lifecycle reducing industry friction when it comes to counterparty interactions.
Support for UTI utilisation was clear in Swift’s whitepaper published in January 2022 titled: Solving the post-trade transparency challenge, The case for a unique transaction identifier in securities. Following the whitepaper, Swift has developed a service that leverages current Swift network messages and references, particularly the UTI. The service, Swift Securities View, was launched in January 2023 and enables financial institutions to track securities transactions from end-to-end throughout their entire lifecycle.
Additionally, Hong Kong Exchanges and Clearing (HKEX) mandates the use of a UTI within Synapse, a settlement acceleration platform for Northbound Stock Connect. Under this post-trade settlement flow, DTCC will create a UTI for each “match agreed” allocation with SSI enrichment. In turn, all subsequent settlement instructions generated by Synapse sent to global custodians, local custodians and clearing participants
will carry the same UTI, and this
common reference will be tracked and used throughout the settlement process. This will enable all parties in the Synapse settlement chain to work off the same
data from CTM, thus minimizing efforts for processing, reconciliation, and exception resolution.
We believe implementing an industry-wide UTI standard and the benefits to the cash securities market of enabling
greater visibility and transparency, accelerating settlement finality, cost reduction and easing exception management efforts are so great that the incentive for post-trade providers will be there for all to embrace it.