The Bond Market Association (BMA) says it wants buyers and sellers of fixed-income securities to jointly create and adopt a set of “best practices” aimed at achieving the goal of automating the clearance and settlement of institutional securities transactions.
Further, it recommends that fixed income securities be confirmed, or matched, on the same day as the trade at the so-called block level, or the initial stage of a wholesale transaction before the securities are split up and allocated.
The BMA made these comments in a letter filed with the Securities and Exchange Commission in response to the SEC’s Concept Release on straight-through processing, or STP, in the securities market.
“The fixed income securities industry has achieved numerous goals in recent years in the STP area,” said Frank DiMarco, Chair of The Bond Market Association’s STP Steering Committee, “We feel that the SEC’s release will facilitate a timely process of prioritizing the STP steps which the Wall Street community needs to achieve in order to continue streamlining its securities processing infrastructure.”
Association members, which include most of the industry’s largest securities dealers, along with many major institutional investors, believe block level trades should be confirmed electronically on the trade day in order to significantly reduce the possibility of mistakes or disagreements. Additionally, once the block trade is confirmed, the BMA believes subsequent allocations should be affirmed electronically no later than T+1, or transaction date plus one day.
The BMA strongly believes these goals can be achieved by the securities industry jointly creating a set of best practices and that a mandatory reduction in the current settlement cycle is unnecessary.
“Devising formal rules with regard to trade confirmation and affirmation could prove difficult given the diversity of firms within the industry,” said Joe Sack, Executive Vice President at The Bond Market Association. “Therefore, it is our feeling that a set of best practices, created by buy side and sell side participants working together, has the best chance of establishing workable procedures for all parties.”
The letter also notes the BMA’s strong support of the development of messaging standards in conjunction with its partnership with FIX Protocol, Ltd. and the Asset Managers Forum. In this regard, the letter strongly urges the Commission to endorse these protocols.
Additionally, the BMA supports the elimination of paper securities certificates, as paperless transactions have already made the transfer of securities ownership less complicated and less likely to be subject to fraud.
The Bond Market Association, with offices in New York, Washington, D.C. and London, represents securities firms and banks that underwrite, trade and sell debt securities and other financial products globally.