Unique Transaction Identifier (UTI)

What is UTI in stock market and how is it helpful?

The Unique Transaction Identifier refers to a special alphanumeric code that can be assigned to any trade/transaction of a financial security. This number increases the transparency in the financial market, because it brings better visibility in the Settlement Process.

After a trade is executed between a buyer and a seller, many back-end processes take place for fulfillment of the obligations of the 2 parties. Multiple financial entities are involved in this step for the settlement of trades. So, having a unique transaction ID can help all the entities to easily identify the financial trades.

As per the regulatory guidelines in a region, the UTI number could be applied for both Over the Counter (OTC) Trades and for trades on the Stock Exchange. The number could be used in trading of any financial security like Stock, Bond, Derivatives etc. It is very similar to the concept of Unique Swap Identifier (USI) that is used in some markets.

Need for UTI code

Suppose that Entity YY and Entity ZZ are involved in multiple OTC trades with each other. Company YY sells stocks of 10 different companies to Entity ZZ today. And let us assume that a Clearing House is used for settlement of these transactions.

Entity YY will report the information about the 10 stocks that it has sold. Similarly, Entity ZZ will report the details about the 10 stocks that it has bought and the payment that Entity ZZ will be making. In order to determine the delivery obligations of both the entities, the Clearing House needs to match the 2 set of transactions reported by the entities.

So, a Unique Transaction Identifier code helps in pairing of these transactions that have been reported by the 2 entities. Otherwise, Entity YY and Entity ZZ could generate their own transaction IDs in whatever format they like. This could lead to a duplication or an error in reporting of the same trade.

Moreover, the UTI in share market is also beneficial for other market participants who are involved in the completion of the Settlement Process. For example, the banks need the transaction ID to link the cash payment to the trade and the regulatory bodies need the unique ID to track that the trades are happening fairly etc.

Faster settlement

With the Settlement Cycle reducing around the world to T+1 and T+0, there is less time available for the post-trade processes. So, the Unique Transaction Identifier helps in automating many tasks and reduces the overall time needed for settlement.

Moreover, failures at settlement time can lead to large costs for all the parties that are involved in the Settlement Process. By using the UTI in trading, the possibility of failures is reduced and it also helps in saving these excess costs.

Structure and format

The Unique Transaction Identifier is made up of alphanumeric characters and the maximum length will be 52 characters. The basic format of this unique code will remain the same across the world and the structure will be made-up of the following elements:

  • The first 20 digits will represent the Legal Entity Identifier (LEI) of the organization that is issuing the UTI number in stock trading
  • The remaining digits in the identifier will be a unique alphanumeric code that is generated by the entity which is issuing the UTI. The maximum length permitted for this part is 32 digits and it is also called as the ‘Transaction Identifier’ part of the code.
sample UTI - Unique Transaction Identifier

Generation of UTI

The regulatory guidelines in a region will define the usage and creation of the Unique Transaction Identifier for the transactions. Moreover, the mechanism of trade execution and settlement will also govern the creation of the UTI.

For example, if a Clearing Member and Clearing House are involved in trade reconciliation, then one of them might be tasked with generation of the UTI.

When trading on the Stock Exchange, a unique Order Number is generated for every buy and sell order that is received by the exchange. And when a trade gets executed, a unique Trade Number or Trade ID is generated by the exchange.

Now, if UTI standard is being followed in a region, then the exchange might be asked to generate the Trade Number in the UTI format, instead of using any random format. This helps in standardizing the Trade ID. The unique numbers help in linking the two counter-parties that had placed the buy and sell order on the exchange.

Over-the-Counter trades

But there are many ways in which the trade could be executed outside of the Stock Exchange. For example, there could be multiple Stock Brokers, Aggregators, Liquidity Providers etc. who might have been involved in the trade.

In such situations, the middleware entity could be made responsible for generating the UTI and for communicating it to everyone. Whereas in some cases, the buyer or the seller might themselves be responsible for generating the UTI and for sharing it with the counter-party.

So, it is best to check the regulatory guidelines in a particular region to clearly identify the entity that is accountable for generation of the UTI in different trading scenarios.

Benefits of Unique Transaction Identifier

Without a standard format across the world, the buyers and sellers in a trade might have their own methods for generating a reference ID for the transaction. So, a unique ID that is assigned to the transactions can be beneficial in the following ways:

  • Helps in regulatory reporting and for increasing the transparency in the market
  • Can be generated for both Over the Counter (OTC) trades and for trades on the Stock Exchange
  • Checking for forgery, frauds and illegal transactions
  • Increases the efficiency and reduces the risk of errors in settlement and reconciliation process
  • The ID is unique and it has a standard format across the globe
  • Helps in building faster and automated processes for the financial entities that are involved in the settlement of trades
  • Reduces the costs and fines associated with failures in the Settlement Process
  • Increases transparency when the buyer and seller belong to different countries/regions
  • Easily checking and communicating the status/progress of the trade settlement

Disclaimer

  • This page is for education purpose only
  • Some information could be outdated / inaccurate
  • Investors should always consult with certified advisors and experts before taking final decision
  • Some images and screenshots on this page might not be owned by FinLib
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