Same Day Affirmation (SDA) Could Save European Securities Industry €200 Million Per Year

London and Brussels - 1 July 2008

At a recent industry event held in Brussels, leading industry figures debated the benefits of automating the trade verification process to achieve same day affirmation (“SDA”). Participating in the discussion were:

- Mario Nava, Head of Unit G2 Financial Markets Infrastructure
- Marianne Brown, President and CEO, Omgeo
- Diana Chan, Chief Executive Officer, EuroCCP
- Judith Hardt, Secretary General, FESE
- Dr. Leonie Bell, Managing Consultant, Oxera

Commenting at the event, Mario Nava, Director (Acting) Directorate G – Financial Services Policy & Financial Markets, Head of Unit G2 Financial Markets Infrastructure said, “The awareness of the importance of SDA is growing and SDA is already part of the Clearing and Settlement discussion in Europe. The worthiness of the subject is understood as it clearly links to two critical market issues: efficiency and stability. To progress we now need further assessments as to the reasons why many markets are slow in adopting automation and SDA.”

Adding to this, Marianne Brown, President and CEO, Omgeo said, “If you take into consideration the number of institutional orders in the marketplace, average failed trade rates and the cost of failed trades we estimate that the lack of efficiency in trade verification could be costing the industry a minimum of €200m per year.”

Dr. Leonie Bell, Managing Consultant, Oxera said, “Our research found clear benefits to market participants for adopting SDA, namely risk reductions and cost efficiencies. However, it seems that a misalignment of incentives is to blame for the lack of efficiency in the middle and back offices.”

She continued, “Investment managers may not feel the pain associated with their inefficiency as this is absorbed by B/D, custodians and ultimately, the end investor. Even if the investment manager does automate, the cost efficiency ends up benefiting the underlying fund rather than the asset manager itself.”

The discussion in Brussels was viewed by both panelists and audience as a crucial step towards bringing the importance of efficient middle office processes at the forefront of the European infrastructure debate.

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