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enough . It is a must-have for the industry and I think we need to do it right now .” The reason for this , explained Barakat , was due to a number of factors coalescing at the same point of time . An ever-growing need for capital , a need for standardised processes and data models , and the development of technology reaching a mature state – now at an “ institutional level scale in terms of production ”.
Aiming for Q4 2024 The US is leading the charge with T + 1 , assuming a third quarter 2024 transition date for the switch . The Securities Industry and Financial Markets Association ( SIFMA ), the Investment Company Institute ( ICI ), and The DTCC recently published a guidance for the implementation of the new settlement cycle , detailing timelines , dependencies and risk impacts that market participants should be considering . “ The Playbook reflects the experiences and lessons learned during the seamless transition from T + 3 to T + 2 in 2017 ,” said Michael Bodson , president and CEO of DTCC , at the time of publication . “ We are confident it provides a clear and defined roadmap to further accelerate the settlement cycle in the most efficient manner possible while mitigating risk . We look forward to our continued collaboration with SIFMA , ICI , the regulatory community and the industry .”
Where difficulties may arise with the US implementation of T + 1 is the lack of global market uniformity , with different regions deploying different settlement cycles . “ It ’ s not only US participants , you are talking about Europe , you are talking about Asia , you are talking about the emerging markets . For this to work , everyone needs to be on the same page ,” said Eloy Sanchez , head of relationship management and sales at S3 CACEIS Mexico . “ Because markets are imperfect , you will have fails in FX transactions , which will incur a cost . Different settlement cycles will increase the number of fails , and with more fails , you are increasing the counterparty risk . So if you ’ re looking at one country , [ T + 1 ] might be magnificent . But we ’ re looking at it for many different countries because everything is interlinked , so we need everyone in the same playground for this to work .” In addition , shortening the settlement cycle presents another set of challenges – the lack of margin for error with operational procedures and reconciliation systems , which can only really be remedied with across the board automation . “ Those fragmented workflows , different data models , reconciliation systems , and all those manual procedures are impossible to maintain if you want to shorten the settlement cycle ,” added Barakat .
This point was picked up on by Matthew Stauffer , managing director , head of institutional trade processing at the DTCC in a recent blog post for Global Custodian , which outlined the importance of automating institutional trade processing for the move to T + 1 .
Challenges ahead The Securities & Exchange Commission ( SEC ) put a spotlight on the importance of institutional post-trade processing in its proposed rules issued on 9 February to shorten the settlement cycle to T + 1 for securities transactions . The proposed rules will require institutional trades to be allocated , confirmed , and affirmed as soon as technologically practicable , and no later than end of trade date . According to the aforementioned T + 1 Playbook , firms using this optimised workflow are achieving a near 100 % affirmation rate by 9pm on trade date , demonstrating the tangible benefit of adopting automated post-trade solutions . It will also be imperative that firms maintain a consolidated view of their business operations globally , across asset classes and jurisdictions , adds Barakat . “ With a shortened settlement cycle , you will need to make decisions in much shorter timeframes – everything will be much more compressed . So having a view of your consolidated position , regardless of what that is – from asset classes to funding to jurisdictions – that will be critical as you make business decisions and manage risks .” While the panel agreed that there were challenges ahead , they were united in the belief that T + 1 would be a very positive move for the industry – and the quicker we get there , the better . Beyond T + 1 , questions remain about a move to T + 0 or real-time settlement , but DTCC ’ s Abel believes the industry should remain focused on T + 1 for now . “ If you think about things like stock loan or financing where non-US investors were struggling with these issues in getting to T + 1 , it ’ s going to be very difficult in a T + 0 environment . “ My advice would be to stay focused on T + 1 . Following that , I believe it would be prudent for the industry to do a true cost benefit analysis on T + 0 , defining what those models would look like , what the true savings are , what the true costs are , then make a decision on whether that ’ s the way to go or not .”
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