Security settlement involves the receipt or delivery of financial instruments against payments. For hedge funds trading thousands of securities, this process is notoriously prone to error as a result of the inaccuracies often found within data and use of sub-optimized workflow systems – leading managers to seek automated solutions in their effort to increase efficiency while simultaneously mitigating risks.
Risk factors
The primary risk factor associated with trade settlement arises from the data-intensive nature of the process. Cash movement and the transfer of securities involves information based on standards set by custodians and brokers and, when trade volume is high, settlements are further prone to inaccuracy.
Additionally, the manual creation of wires and tickets produces a number of operational risks for managers, as a small human error has the potential to lead to significant losses. Here, timing risk, control risk, detection risk, IT and infrastructure risk are high due to the fact that manual systems lack proper checks and balances. Furthermore, keeping audit trails for the creation of these wires is also burdensome.
Solution
An application that is seamlessly integrated with SWIFT and can handle large volumes and varieties of security types and transfers can be considerably beneficial for hedge funds. With features like encryption and authentication, centralized trade settlement management and multiple approval-based workflows, it reduces the need for human intervention through automation – making it the optimal way of settling trades both now and in the future.
With IVP Cash Management Solution, hedge funds can leverage these features in a robust solution to minimize risks, eliminate time-consuming processes and more.
