Typical Operational Breaks
Settlement Instruction Issues
Learning Outcome
5
Assess the risks arising from incorrect settlement instructions.
4
Describe how these issues are detected and resolved.
3
Explain the causes of settlement instruction issues.
2
Identify common settlement instruction issues.
1
Define settlement instructions and their purpose.
What Are Settlement Instructions?
Settlement instructions:
Details that tell the clearing and settlement systems exactly where and how securities and funds should move to complete a trade, such as the custodian, depository account, and payment details.
Also called SSIs:
These are often referred to as Standard Settlement Instructions, since they are usually set up in advance for a client or counterparty and used repeatedly for future trades.
Common Types of Settlement Instruction Issues
Custodian errors: The trade is instructed to settle through the wrong custodian, who does not hold the relevant securities or is not authorised to act for that client.
Depository account errors: An incorrect demat account number is used, so securities cannot be credited or debited from the intended account.
Payment instruction errors: Incorrect bank account details, wrong payment method, or missing payment references, causing funds to be sent to the wrong place or delayed.
Common Causes
Outdated static data:
A client's custodian or bank details change, but the old details are not updated in the firm's records.
Common Causes
Manual entry errors:
Incorrect account numbers or codes typed in while setting up or amending settlement instructions.
Multiple accounts:
A client holding several accounts with different custodians or banks, leading to confusion over which one applies to a specific trade.
Detection and Resolution
Detection:
Settlement instruction issues are often caught either during confirmation, when instructions are exchanged, or when settlement itself fails to go through.
Investigation:
The operations team checks the client's current static data and confirms the correct custodian, account, or payment details.
Resolution:
The correct settlement instructions are updated in the system, communicated to all relevant parties, and the trade is resubmitted for settlement.
Summary
5
Accurate SSIs prevent settlement failures.
4
Outdated data and manual errors cause issues.
3
Issues include custodian, account, and payment errors.
2
They are commonly called SSIs.
1
Settlement instructions guide securities and fund transfers.
Quiz
What is a common cause of settlement instruction issues?
A. Corporate actions
B. Interest rate fluctuations
C. Outdated static data and manual entry errors
D. Market volatility
Quiz-Answer
What is a common cause of settlement instruction issues?
A. Corporate actions
B. Interest rate fluctuations
C. Outdated static data and manual entry errors
D. Market volatility
