Traded v Settlement - CASS
Asset reconciliations on platforms have been completed on a traded basis in line with statements provided by fund managers. The CASS rules are silent on the basis of reconciliations, although it is clear that the settled outcome reflects the true position of stock held in the trading cycle. However, reconciling on traded basis does allow for some forward view of the position of trade and cash reflecting the commitment of client money to traded assets.
On the advice of auditors the FCA have come to the opinion that reconciliations should be on a settlement basis. CASS works on the principle of firms being ready for insolvency at any point and settled trades reflect the true position of stock at any point, even though it is likely that trades will proceed through the settlement cycle, in an insolvency situation. There are some rare examples, however, of funds going into liquidation after issuing contract notes and the stock never autually settling, leaving long-standing record breaks.
Unfortunately, this changed has caused quite a few headaches for investment platforms as they have to manage reconciliation of statements provided by fund managers on a traded basis. The aim is to persuade fund managers to provide statements on a settlement basis to remove the hundreds of breaks that might otherwise arise due to nothing more than timing issues and the considerable amount of work that follows therefrom. Systems will have to be adjusted to enable more automation of reconciliation on settlement and to cope with variations in fund manager's statements until they can all be brought into line.
There are arguments on both sides as to which position gives the best outcome but the regulators and auditors are determined to push through this change so platforms and firms subject to CASS everywhere must adjust accordingly. I hope the fund managers are listening.