Eliminating trade breaks is the key to shortening the U.S.’s settlement cycle to T+1 within the next two years, according to Terrence Cheung, VP of Product Management at LiquidityBook.
Trade breaks occur in the back office when there is a disagreement between the buy-side firm and its sell-side counter-party, he said, adding that these disagreements can be numeric in nature.
“For example, price, gross amount, commission or fees can be inconsistent because of how different systems perform rounding in their calculations,” Cheung told Traders Magazine.
Trade breaks can also occur because of miscommunication, he said.
“For example, if the buy-side firm changed its settlement instruction, and the sell-side firm didn’t update its system, catching this discrepancy intraday will prevent trade breaks in the back office several days later,” Cheung explained.
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