Slightly different format this week. What do you think? Last week, I was asked about SSI’s in the FX business. Who should do what? Understandable issue as an account may not initially trade FX or might do certain currencies later. I tried to make a general theory for this. Feedback on the following is very welcome.
When new accounts are on-boarded, this is something that falls with Client On Boarding (COB) team. Clients will fall into two groups: clients and counterparts, with the latter holding their cash or securities somewhere else. In order to deal with “somewhere else”, accounts need to have settlement instructions. This is no different from ordering something on Amazon.com; a delivery address. The term SSI is used across all products.
Care is required with SSI’s though; if we are settling bonds against payment, then as long as nobody puts in a wrong price, there is an exchange of goods and money, normally on a delivery vs. payment basis. If we are talking about payment instructions, then if you make a payment you are not receiving anything in return. You will want to be sure that you are sending the money to the right place.
The business your firm does with a counterpart may well change over time. It would make no sense to expect to have settlement instructions set up for every product, even if you do not know yet whether you will trade that product.
The basic principal should be that COB must obtain, input and approve instructions for the products related to the requesting team; so if equities open a new account, they should take a box saying FX Y or N, in fact same for any product. If they say no, then I think COB are “out of the picture”, for now. If yes, then they need to get it. If an FX salesperson opens the account then I think COB are on the hook to do the work upfront to obtain FX SSI’s.
COB need to have procedures for two types of SSI’s: those and those not published. Table 4 shows the suggested approach in each case.
Verifying SSI’s
| Published | Not-Published | |
| Meaning | Readily available, via the Internet and clearly published by the counterpart | Counterpart sends you a list or reads them to you |
| Controls | 4 Eyes Principal: input and approve | Call back: independently source the phone number and call and confirm4 Eyes Principal: input and approve |
For anything related to payments or FX, there will be the question is, which currencies? Ideally the COB request once you tick FX = Y, will ask you about derivatives, i.e. anything but spot and then ask about currencies. These are basically G10 and others. COB ought to get SSI’s for the ones that are ticked
Downstream of COB
It will happen that an existing account wants to do a product or currency for which SSI’s are not set-up, or even to change SSI’s.
Table 5: How to deal with SSI’s once an account is open
| Add a Product | Add a Currency | Change SSI’s | |
| System Control | Ideally if the account is not ticked as “yes” in COB system for a product, then the account does not appear in the trading systems for that product. This way, adding a new product to an existing account forces the process back to a secondary COBIf the new product is a derivative, then ISDA’s & CSA’s will be needed | Most likely the front-office and back-office systems will allow a trade to be booked even if SSI’s are missing for say THB. If a firm has the best-controlled process, this should be an exception for the product processing Middle Office, who go back to COB to have the currency added. | Either on a single trade, which is a no-no, or for all trades. This should go to COB. It is really part of the On going Due Diligence (ODD) phase. After all if you go from USD at JPM to USD at some remote bank in Idaho, that is a red flag on the trades and even on the relationship |
| Ops Role | Ops is the controller and the messenger, they might collate the information and pass it on, but not change the data. The guardian of the procedure and doer of the change should be COB | ||
| MIS | In a truly ideal set-up you’d have a general KRI on this of how many get handled per week and a count by sales person. You could think of these like yellow cards in football. One is not so bad, but a series of them is. | ||
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