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As North America prepares for the T+1 transition, other jurisdictions must consider the impact on their own operations, panellists at this year’s Securities Finance Times Technology Symposium affirmed.
They also agreed that other jurisdictions should also prepare for their own potential move to a shorter settlement cycle.
Speakers began the discussion by affirming the importance of the North American move to T+1, with Darren Price, head of securities lending product development at Brown Brothers Harriman, emphasising the considerable impact that the shift will have on infrastructure worldwide.
As the biggest global market, the US has a strong influence on other jurisdictions. The UK is already preparing for a transition to T+1, with Europe expected to follow.
Matt Johnson, director of ITP product management and industry relations at DTCC, suggested that the North American move to T+1 will provide alignment opportunities worldwide, along with potentially reducing credit and margin requirements and facilitating more successful requests for resources and budget.
However, Grant Davies, head of EMEA sales at EquiLend, raised concerns about the impact that cross-jurisdictional activity between regions operating on different settlement cycles could have on exchange-traded funds and foreign exchange. Dislocated settlement will prompt “difficult challenges”, he said, including around the funding and borrowing needs of the US market.
Davies maintains that the T+1 transition is an achievable feat, but warns that there are many elements that need to be considered and kept in mind as the initiative progresses.
For agent lenders, Price stated that one key pain point is the speed at which data moves through the programme. He observed that many clients are still operating on end-of-day (EOD), Swift or batch instructions, with data received by the agent lender after EOD. As this data needs to be turned around at pace, this is a significant problem.
Contributing a broker-dealer perspective, Davies shared that connectivity is a key issue. Data needs to be made available on a cross-jurisdictional level, which can be difficult given the varied capacities of different regions.
“We can create technology for anything, be as clever as we want to be, but regulation is where the real change is made,” he observed. It’s important for firms, and the industry, to change the way they’re working rather than just embrace technology; similarly, solely increasing headcount will not solve the problem.
Trade failures are primarily due to inventory issues, something which many clients aim to solve in-house, Johnson shared. He hoped that T+1 will help to drive transaction transparency, reducing settlement breaks and fails.
Price commented that the settlement process “falls down” in the face of exceptions, requiring repairs and manual intervention. These processes must be automated, he said, and vendors must ensure interoperability between their systems in order to make operations more efficient.
Taking a look at how prepared different jurisdictions are, Johnson reported that the UK, EU and APAC are now “coming to grips” with the impact that the US transition will have. However, understanding varies. In the US, the majority understand what a shortened settlement cycle means and what they will have to do; in APAC, however, he estimated that “only 30 or 40 per cent” are prepared, with the UK sitting between the two. Education must continue around T+1 in order to facilitate the cleanest transition possible.
It’s important to do “as much as possible as close to execution as possible”, Johnson affirmed, commenting that the industry needs to reimagine how things are done“. He advocated for a single point of truth to be established — something that Davies suggested could be achieved via DLT.
However, Johnson went on to say that a singular DLT platform is not achievable — questions of who would run and regulate the service would be too complex. Instead, there will be DLT “pockets” that must be well-regulated and interoperable, he said.
Looking forward, the majority of panellists agreed that while the US’ move to T+1 will provide a ‘sounding board’ for the EU’s plans for T+1; particularly in terms of functionality and technology developments, Price said. However, he went on to say that implementing T+1 in Europe is a far more complex operation than it is in the US. This is due to factors including the impact of CSDR on potential fails, the way in which collateral functions in Europe and a lack of interoperability. On the other hand, Davies stated his belief that even shortening the settlement cycle to T+1 “is not a good idea for Europe”.
Johnson commented that T+1 is “the perfect stepping stone to T+0”. A contested topic, a potential move was met with varied responses from speakers. Although it is admittedly a “different ballgame” to T+1, it will provide an opportunity to revolutionise operations, he said.
Whether or not this will become a reality is dependent on North America’s approach to the issue, he concluded; “if the US does something, the world takes notice.”
