Same Day Affirmation

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Same Day Affirmation
Issue Summary for Consideration by the AMF
Membership July 16, 2009
Lee Cutrone John Burchenal
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Background on SDA Initiative

• SDA first suggested in US after failure of T1
  settlement initiative
• SDA recognized as a critical building Block for
  shorter settlement efficiency
• SDA was a key question raised in SEC Concept
  release in 2004
• Embraced by Canadian Market NI 24-101
• Canadas SDA rate now exceeds US rate
• SDA momentum building in Europe as a single
  Pan-European CS model begins to takes shape
• Oxera Research helps quantify the value of SDA,
  i.e.,
• Automation SDA leads to reduced operational
  risk improved settlement efficiency
• Automation SDA are enablers to more efficient
  and volume insensitive processing
• Efficiency gains translate into lower transaction
  costs for end-investors
• SDA is estimated to save the European market 200
  million Euro/year
• Current financial crisis presents a window of
  Opportunity for an SDA mandate
• SDA mitigates risk

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Canada vs. US SDA T 1 Comparison - Before
(2006) After (08 09) SDA Mandated
Canada Surpasses US Affirmation Rates
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Background on SDA Initiative, Contd

• SDA first suggested in US after failure of T1
  settlement initiative
• SDA recognized as a critical building Block for
  shorter settlement efficiency
• SDA was a key question raised in SEC Concept
  release in 2004
• Embraced by Canadian Market NI 24-101
• Canadas SDA rate now exceeds US rate
• SDA momentum building in Europe as a single
  Pan-European CS model begins to takes shape
• Oxera Research helps quantify the value of SDA,
  i.e.,
• Automation SDA leads to reduced operational
  risk improved settlement efficiency
• Automation SDA are enablers to more efficient
  and volume insensitive processing
• Efficiency gains translate into lower transaction
  costs for end-investors
• SDA is estimated to save the European market 200
  million Euro/year
• Current financial crisis presents a window of
  Opportunity for an SDA mandate
• SDA mitigates risk

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Goal of SDA Initiative

• Educate Legislators and Regulators on the Same
  Day Affirmation (SDA) value proposition
• Support SIFMAs broader ongoing effort to partner
  with Regulators to drive meaningful and realistic
  regulatory change
• Gain the support of key Legislators and
  Regulators for the creation of a Same Day
  Affirmation regulation across asset classes.
• A critical element in gaining such support is an
  endorsement from SIFMAs (Broker) Operations
  Committee and the AMF

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Key Messages to Legislators/Regulators

• Mind the Gap
• Regulators should ensure that the ability to
  process a transaction in any asset class keeps
  pace with the ability to trade that asset class
• Dont ignore the middle and back office
• Where practical, there must be consistency of
  regulation across asset classes (particularly in
  the Middle Office confirm/affirm area)
• Same Day Affirmation
• The faster trade details are agreed upon, the
  lower the Operational Risk and Settlement Risk
• In order to fully mitigate this risk, SDA must be
  universally adopted
• Universal adoption of SDA requires regulation
  it will not happen voluntarily
• Electronic trade processing (A Gateway to SDA)
  also promotes better audit trails, lowers risk of
  fraud increases investor confidence

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The SDA Value Proposition

• Buy-Side
• Fewer Fails/Reclaims/Claims
• Reduced operational risk
• Reduced market error risk
• Lower costs for clients
• Higher Rates of STP
• Aligned with global regulatory reform
• Potentially forestall regulatory push to reduce
  settlement cycles
• Increases capacity to trade and process
• Sales tool for new business
• Custodian Banks
• Fewer Fails/Reclaims/Claims
• Lower FTE costs
• Leverage investment in existing technology
• Higher customer satisfaction
• Reduced operational burden

The SDA initiative is an easy win that shows
regulators and the public how the Securities
Industry can come together to drive substantive
positive changes to lower industry costs, reduce
systemic risks and increase electronic processing
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How the AMF Can Help

• Endorsement of an SDA regulatory mandate from the
  AMF Steering Committee and general membership
• Add SDA to the AMFs ongoing agenda
• Identify actions to be taken by the AMF to
  promote an SDA Regulation
• Together with the SIFMA (Broker) Operations
  committee, provide assistance in educating the
  SIFMA Government Relations staff on role of
  Middle Office value of SDA as a risk mitigation
  tool
• Include SDA in SIFMAs regulatory agenda
• Participate in meetings with Legislators and
  Regulators, as needed

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