A Unique Transaction Identifier for securities: All you need to know

Why are identifiers important?

The securities industry continues to strive for ‘zero touch’ post-trade processing. Through increased automation, firms can address a number of challenges, including thinning margins, improving customer experience, meeting settlement discipline regimes, and preparing for shorter settlement cycles.  

But automation alone is not enough. Increased transparency along the securities settlement cycle is key to removing friction. Here’s where identifiers come in. And one in particular, the UTI, can enable market participants to track securities transactions throughout the lifecycle of a trade. This has a number of benefits, including making it possible to identify trades at risk of failing and taking action to solve them.

What is the UTI and how is it being used today?

The UTI is a unique alpha-numeric code comprised of up to 52 characters that is assigned to a securities trade. This enables a trade to be tracked from end to end throughout the lifecycle of its settlement. The UTI is part of the ISO stable – namely ISO 23897:2020 – and is already used in securities markets for transaction reporting purposes.

For instance, the European Market Infrastructure Regulation (EMIR) requires one of two trading counterparties to generate UTIs for their over-the-counter and/or on-exchange derivative transactions ahead of them being reported to trade repositories.

Similar UTI provisions are in place for the EU’s Securities Financing Transactions Regulation (SFTR), which obliges financial institutions to disclose details about their SFTs (i.e. securities lending, securities borrowing, etc.) to trade repositories. In the US, the Dodd-Frank Act introduced a UTI-like Unique Swap Identifier to facilitate swaps reporting.

Swift collaborated with the securities community to evaluate the business case for the UTI to be leveraged more widely in the securities settlement process. Analysis of pre-settlement issues and fails, identified three principal areas: timing, inventory, and discrepancies between counterparties economic and SSI data, and how the usage of a UTI can mitigate and eliminate these friction points.

Together with a working group of financial institutions and several industry associations, we’ve developed market guidelines on its implementation for securities trades, co-created Swift Securities View and are working with market infrastructures and participants to adopt the UTI in their workflows.

What benefits can the UTI bring to the securities settlement process?

Once adopted by at least one party from each side of the process, the UTI can enhance transparency for all participants across both legs of the settlement lifecycle. By having greater visibility in the transaction chain, firms can identify and resolve bottlenecks or settlement lifecycle issues more quickly. This reduces costs and operational risks arising from potential settlement fails.

The UTI enables firms to proactively detect and manage settlement discrepancies so that problems can be resolved before they occur. This will help firms avoid financial penalties, reduce time spent on investigations and counterparty communications for exception management.

Improved post-trade transparency also means intermediary firms are in a stronger position to field client queries about clearing and settlement more quickly. And, through consistent data, it will be easier to transmit and track transactions between traditional and next-generation technologies, enhancing interoperability and paving the way for innovation.

What does UTI implementation entail?

The UTI can already be exchanged between counterparties today. The most-used standards messages for trade, settlement and reconciliation, whether in ISO or FIX format, include fields that support the communication and exchange of UTIs between systems and counterparties.

Already today various matching platforms are capable of generating the UTI and sharing it with the securities buyer and seller. When no matching platform is used, buyer and seller firms typically confirm the trade allocation on a bilateral basis, for example via FIX messaging, which also supports the exchange of the UTI. Similarly on the Swift network, the settlement messages (MT54x) support the communication of a UTI in the settlement flow.

Adoption has been focused on leveraging existing matching platforms, bi-lateral allocation processes and service providers that support the allocation and confirmation processes. Also on getting cross-border financial messaging providers/infrastructures to support the UTI on their systems and maximise its benefits across business activities (e.g. customer support) and channels (e.g. front-end portals).

Standards adoption typically requires firms to update their internal data models and, if applicable, client and counterparty interfaces. This is to be able to ingest and transmit the identifier unchanged across the chain of intermediaries involved in the securities lifecycle. The amount of system development needed will vary from firm to firm, with some firms indicating it will take as little as three weeks.

It’s vital that all parties involved in a securities settlement transaction use the same identifier and that market practices are clear and well defined. This is a primary area of focus Swift and our community of securities players have been working on with other market participants and application providers, and on which we have published market guidelines.

What are the next steps in the UTI adoption journey?

Whether driven by regulations or industry initiatives, adoption of the UTI has already started at several market infrastructures, with others poised to follow suit.  

Many market participants believe in the benefits of the UTI’s broad usage across securities flows. Some even see the benefits in eventually mandating its usage.

In short, the UTI is a key enabler for change, and we encourage all securities market participants to learn more about the benefits it could bring to their institutions.

Where can I find more information?

For more information on the benefits of the UTI and what it could mean for your organisation, download our report Solving the post-trade transparency challenge: The case for a unique transaction identifier in securities , or contact your Swift account manager.

For more information about how the UTI is generated and communicated, download the Market guidelines and implementation summary.