Affirmation Backlog After an NCSS Outage
At 15:05 on T+1, NCCPL's National Clearing and Settlement System (NCSS) goes down for 70 minutes. It comes back at 16:15. The affirmation cut-off for T+1 trades is 17:00; settlement is T+2. Brokerage Global Securities has 1,850 institutional trades worth PKR 4.1 billion pending affirmation. Of these, 620 trades worth PKR 2.8 billion are with a single custodian whose own system is still down. The broker's operations team has a backup file of trade details but the file's format is one version older than the current NCSS upload template. Manual entry of all 1,850 is impossible before 17:00. The broker's risk head proposes affirming all trades 'on behalf of' the custodian using a shared login, and correcting later. The custodian's operations contact cannot be reached. One trade worth PKR 300 million is a sell that the client says was entered in error.
1. What should the broker do first, and which trades should be prioritised?
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First, isolate the alleged error trade: do not affirm it until the client's instruction is verified; a PKR 300m sell cannot be 'corrected later' once affirmed. Then stabilise the file: convert the backup to the current template in a test environment, validate a sample of 20–30 trades, and upload in batches rather than manual entry. Prioritise by value and risk: large sells, trades with counterparties who can confirm, and trades nearing the cut-off. Contact NCCPL operations about the outage and ask for the prescribed contingency procedure; document every step. Do not use the custodian's shared login.
2. Is affirming on the custodian's behalf acceptable? Discuss controls and regulatory risk.
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No. Affirmation is a bilateral control; affirming on another member's behalf using a shared login is unauthorised access, creates false evidence that the custodian agreed, and may breach NCSS access rules and securities law. 'Correcting later' does not cure it because settlement and risk transfer follow affirmation. If the custodian is uncontactable, escalate through NCCPL's operational channels and use a documented exception process. Obtain written authority if the custodian genuinely appoints the broker as agent, but shared credentials remain prohibited; each member must affirm from its own access.
3. What is the risk if the PKR 300 million error trade is affirmed and settled, and how should it be handled?
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If affirmed, the trade becomes a binding settlement obligation; the broker's client may refuse to pay or deliver, leaving the broker with a PKR 300m position and market risk. Before cut-off: contact the client in writing, confirm whether the order was erroneous, and use the exchange's trade cancellation or amendment process if available. If too late, consider an offsetting trade only with explicit risk approval, because it creates a new obligation and may itself be an error. Notify NCCPL and compliance. Do not affirm and hope to fix it later; document the client's instruction and the timeline.