Why has the Buy-side been
left out of a process that reduces transaction volumes and protects the
securities industry via time-tested risk mitigation processes?
That the buy-side doesn’t
participate in the post trade date process, that protects street-side
participants and ensures timely and accurate settlement, is an oversight by the
industry as well as the regulators. Post trade processes evolved, from the
early 1970’s, originally driven by the paper work crunch of the late 1960’s.
Today these processes ensure that the industry is safe and capable of
supporting substantial growth in trade volumes. These processes include trade
comparison, trade netting and settlement.
But the infrastructure
only protects the street-side which leaves buy-side participants outside the
process. In turn this exposes the street-side to risk of settlement failures
and the need to process additional transactions volumes.
There are alternative
methods of buy-side participation; one where the investor would become a member
and participate directly. Another is having the investor’s Custodian or Prime
Broker represent the investor and participate on their behalf. Both alternatives
would require some accommodation by the industry infrastructure and the
Buy-side but it would be a “win-win” for everyone.
What are your thoughts?
Do you agree…..or…… disagree?