Trade settlement may happen behind the scenes, but its impact on risk, cost, and client confidence is anything but invisible. Fails and breaks not only disrupt daily operations, they also expose firms to regulatory fines, reputational damage, and strained counterparties.
This blog marks the second installment in our five-part series on evaluating middle office outsourcing providers. In Part 1, we focused on Reporting & Performance Analytics. Here, we turn to the operational core of any investment firm: post-trade settlement.
Start with Internal Questions
Before exploring providers, firms should take a hard look at their own workflows. The goal isn’t just to outsource what exists today, but to redesign a settlement process that reduces risk and enables scale.
Pain Points & Workflows
- Where do settlement issues most often occur, high fail rates, manual follow-ups, late instructions?
- Which workflows are still heavily manual (e.g., brokers not using CTM, custodians requiring faxes or bespoke files)?
Controls & Reconciliations
- Do current controls reliably catch breaks early?
- How are standing settlement instructions (SSIs) maintained, validated, and updated?
Governance & Requirements
- Are we aligned on how exceptions should be prioritized and escalated?
- Do Ops, Compliance, and Technology teams share ownership of requirements?
- Who will lead testing and final sign-off during onboarding?
- Have we defined trade reporting needs (e.g., trade blotters, interested party files, custom formats)?
Key Questions for a Potential Provider
Once internal alignment is clear, the next step is assessing how a provider will manage both today’s challenges and tomorrow’s market changes.
Trade Matching & Instruction
- Do you instruct trades only once they’re matched via CTM?
- How do you handle brokers that require manual allocations?
- What channels are supported (SWIFT, FIX, APIs, fax, bespoke file formats)?
- Can you adapt to counterparties requiring custom instructions?
Exception Management
- How are exceptions flagged and escalated?
- What dashboards and alerts are available for monitoring settlement status?
- Is resolution workflow automated or reliant on manual chasers?
Technology & Automation for Confirm Matching
- What tools exist for matching and affirming DTCC confirms?
- Is matching real-time or batch?
- Can tolerance levels and matching rules be configured by the client?
Standing Settlement Instructions (SSIs)
- How are SSIs maintained and validated to prevent fails?
- Are third-party SSI utilities integrated, or is data stored internally?
- What safeguards reduce the risk of incorrect instructions?
Transparency, Oversight & Reporting
- Do you provide dashboards for real-time monitoring across brokers and custodians?
- Are audit trails available for all post-trade activity?
- Can trade blotters, interested party files, or bespoke regulatory formats be generated?
- How quickly can new formats be built if counterparties require changes?
Scalability & Regulatory Readiness
- How do you prepare clients for evolving market structures (e.g., T+1 settlement)?
- Can your model scale seamlessly across asset classes and geographies?
- Will growth require more manual steps, or does automation scale with it?
Client Support
- Is support dedicated or pooled across clients?
- How do you handle urgent settlement fails close to deadlines?
- Is there a single point of escalation or account manager available?
Settlement is often seen as the “plumbing” of investment operations, but when it breaks, everyone notices. High fail rates, manual intervention, and lack of transparency erode trust with both counterparties and clients. A strong middle office provider should not only execute trades accurately and efficiently but also deliver real-time visibility, scalability, and a proactive approach to regulatory shifts.
By asking the right questions internally and externally, firms can ensure their settlement process isn’t just operationally sound, but also future-ready.
Coming next in our series: Part 3: Accounting Systems & Asset Class Coverage — evaluating a provider’s ability to support your books today and future-proof your operating model.