Failed trades cost institutions €182 per trade

Failed trades cost institutions €182 per trade

Human error is the top reason for failed trades but 13% of institutions do not know why a trade has failed, according to a report commissioned by Omgeo. Estimated same day confirmation rates are also wildly inaccurate in some European countries.

Failed domestic trades are costing institutions €182 per failed domestic trade and €388 per failed cross-border trade, according to a report from Fulcrum Research on European institutional views about trade processing.

The main reason for failed trades was human error, according to the report. Thirteen per cent of front office respondents were unable to provide answers as to the causes of failed trades. The second reason was the provision of incorrect data.

Adam Bryan, CEO, Omgeo, says: "Failed trades are costing firms and investors an excessive amount of money because of the lack of efficiency in processing. Straight-through processing (STP) delivers money back to a firm’s bottom line as it reduces the rate of failed trades, enabling them to maintain competitive edge."

Same day affirmation (SDA) – or confirmation – is an important indicator of STP success. SDA rates are key to the achievement of STP as both parties to a trade agree trade details within a day. This allows them more time to focus on dealing with exceptions and preventing trades from failing. In the survey, 100% of European institutions grossly under- or over-estimated their SDA rates.

In the UK, SDA rates were estimated to be 76% but they were only 60%, although this was the narrowest gap among respondents between perceived rates and results. Italy had the widest gap between actual and perceived rates. Respondents estimated that SDA rates were 92% but they were only 41%. The average gap between perceived and actual rates was 37%.Actual SDA rates are based on Omgeo Oasys Global Benchmark data.

Bryan says: "European institutions are beginning to feel the heat on operational efficiency issues and transaction costs. But their answers to SDA rates show they do not realise the extent to which they are failing to achieve it."

However, there is a consensus of opinion that operational efficiency is growing of increasing importance. Over 79% of UK, French, German and Italian institutions identified it as their top concern.

It is of prime concern to front and back-office staff in the UK. More than 90% of UK respondents stated that operational efficiency and transaction costs were the two issues they were most concerned about. According to the report, 69% of all respondents stated that the STP was the way to address these issues.

The main business drivers to improve operational efficiency and lower transaction costs were maintaining competitive advantage and reacting to client pressure. Thirty-eight per cent of front-office respondents cited client pressure as a driver while 35% of back-office respondents saw achieving competitive advantage among their peer group as the main driver.

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