SWIFT pilots technology meant to prevent trade settlement failures

SWIFT, the global messaging system used by financial institutions to send information about millions of transactions each day, has piloted new technology that tracks communications about securities trades in an effort to increase efficiency and reduce settlement failures.

The Society for Worldwide Interbank Financial Telecommunications has been testing SWIFT Securities View, a platform designed to enhance transparency from when a securities transaction takes place until it's matched. The solution uses unique transaction identifiers, or UTIs, to link communication related to the same securities deals. 

Financial institutions that participated in the pilot included BlackRock, BNY Mellon, Citi Global Markets, Credit Suisse, JPMorgan, Northern Trust and Pershing. Northern Trust has been working with SWIFT on the project for about a year.

One of the challenges with the communication of security settlement instructions is the large number of parties involved, including investment managers, custodians and other intermediaries, Russ Stamey, senior vice president of asset servicing at Northern Trust, said in an interview with American Banker.

"By using this unique transaction identifier, it's going to allow us to not only better track the transactions end to end to ensure timely and accurate settlement, but also be able to communicate those statuses back to our clients in a more timely manner through the platform," Stamey said.

UTIs, which are embedded by the initiator of the transaction, automatically connect messages so that participants can update clients more quickly and detect discrepancies between buy-sell instructions before a transaction fails. 

Settlement fails add operational costs, as well as regulatory penalties. Earlier this year the Central Securities Depositories Regulation introduced a Settlement Discipline Regime for institutions operating securities settlement systems across the European Union, requiring more procedures to mitigate securities fails. SWIFT says the industrywide adoption of the UTI could mean a reduction in the number of matching or timing fails by 90%, per a January discussion paper. 

SWIFT Securities View also created a platform where users can view the status and communication of a settlement at any time, Stamey added. Currently, participants can only view the settlement status and communication at the endpoint of a transaction. 

"SWIFT Securities View does more than just empower our customers to identify and rectify discrepancies in settlement transactions," Vikesh Patel, head of securities strategy at SWIFT, said in a prepared statement. He compared the securities tracking tool to Swift's Global Payments Innovation software for tracking cross-border payments.

SWIFT Securities View will be available for broad adoption in 2023. 

SWIFT, which is based in Brussels, connects more than 11,000 organizations in more than 200 countries and territories through the communication platform, but the platform doesn't hold funds or manage accounts. 

SWIFT Securities View is the latest of several innovation projects the platform is pursuing. Earlier this month Bloomberg reported that SWIFT piloted a project with the fintech company Symbiont to enhance communication of events like dividend payments and mergers using blockchain capabilities.