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ISITC Issues Market Practices for SSIs

February 19, 2009 By Chris Kentouris

Securities Industry News

The International Securities Association for Institutional Trade Communication (ISITC) has released market practice guidelines for standing settlement instructions (SSIs).

Developed by its reference data working group, ISITC says the new SSI practice is designed to enhance the consistency and efficiency of the processes used by investment managers to set up and maintain the instructions with their custodians and brokers. The reference data group is led by representatives from State Street Corp. and JP Morgan Chase & Co.

“We want to establish uniform communication of SSI data across counterparties, thereby reducing the amount of manual intervention required to process such data,” said Genevy Dimitrion, ISITC chairman and VP of global product management at State Street.

The new template covers all global markets, according to ISITC, and will enhance SSI processing, regardless of whether an investment manager uses an industry utility or an in-house database. “Incorrect SSI data has created greater risk within the settlement process,” explained Dimitrion. “Too often the investment manager receives SSIs from custodian banks in either paper-based form or inconsistent formats. It then has to input the data manually.”

SSIs represent the final stage in post-trade processing prior to settlement. Once fund managers and brokers agree on the basic terms of a trade--which stocks, how many and at what price--settlement instructions must be attached, indicating where to deliver securities or cash. The instructions typically include the names of custodians, their local agents, the depository of settlement and identifying account information.

Dimitrion said that Omgeo and SSISearch, among others, will adopt the ISITC message formats for their respective databases. In February 2008, Omgeo said it was incorporating the interface of SID, or Standing Instructions Database, into its other database, Alert, allowing investment managers to input, edit and delete account and settlement instructions for Depository Trust Co. through a single portal.

In another move announced Feb. 19, ISITC’s securities lending working group has developed a market practice to improve the process by which reallocation instruction messages are sent from third-party lending agents to custodians, changing the loan assignment from one fund’s custody account to another fund’s. The underlying beneficial owner of the securities remains the same. “The goal is to ensure that the switch is done in an automated book-entry process rather than through paper-based manual communications,” said Dimitrion. The stock lending working group is led by Prudential Investment Management, Brown Brothers Harriman & Co. and Bank of New York Mellon Corp.

Regardless of whether the lending agent is the beneficial owner of the underlying assets, the agent is authorized to lend out the securities on behalf of their owner--the portfolio manager. All financial instruments that are eligible for securities lending are included in the ISITC standard, including corporate bonds, equities and government securities. “The implementation of the new market practice will provide firms with additional opportunities to increase straight-through processing, reduce fails and increase loan revenue,” said Dimitrion.

“ISITC is continually engaged in the work of producing new industry standards to help market participants improve operations and reduce risks,” added Dimitrion in a prepared statement.