THETRADETECHFX DAILY cover feature exchange has become yet another area of the markets which have emerged seemingly unscathed by the transition to a shorter cycle .
According to CLS , the infrastructure has seen a slight uptick in fund-related submission values to CLSSettlement starting from 2pm CET onwards , with a more pronounced increase between 10 and 11pm CET followed by a decrease after 11 pm CET . CLS explained however , that the initial increase is more significant than the subsequent decline , suggesting no overall loss in submission values . “ While we cannot definitively attribute the observed growth to the transition to T + 1 , there are early signs suggesting that the shortened settlement cycle is influencing behaviour within the asset manager and fund communities during this time period ,” the organisation said .
“ For example , the increase observed from 2pm CET could indicate an increase in funds executing the FX component of a security before confirmation of the security trade execution . The increase between 10 and 11pm CET may suggest that funds are still able to submit their securities-related payment instructions to CLSSettlement , possibly due to enhanced process automation and support from global custodians in adjusting cut-off times ahead of the CLS 12am CET initial pay-in schedule ( IPIS ) deadline .”
Whether it was the right call or not remains to be seen , given there are a multitude of other factors to measure when considering the impact on the processes of asset managers . Speaking in a recent panel discussion , Tara Taylor , managing director , State Street Global Markets , said : “ The unnoticed costs and challenges [ around T + 1 ] are things like
- not only liquidity - but deadlines and being able to meet them , whether that ’ s CLS settlement , custodian or providers and FX counterparts and how late they can offer execution times . We ’ re seeing a shift to a lot more same day value type transactions
Again , talking about data , it is as quick as clients can get that data to execute that FX . A lot of times they are missing execution or instruction times and that is pushing a lot of the settlements to be same day value or cash transactions . The impact of that is just starting to be realised now .” Many market participants are conducting ongoing assessments on the impact of T + 1 with some now looking at the first three months of data , while others may wait until year end .
“ We are planning to run some analysis and three months is a good data set to start with . It ’ s all about incremental gains . If you look at the breakdown of your FX performance and that in the context of your fund performance , it ’ s just one contributing factor and it ’ s very easy to forget about it ,” said Katie Renouf , senior vice president , global investment management distribution , Mesirow .
“ When you look at , for example , settling trades outside of CLS , the impact that potentially has on your bank credit line and the pricing you receive – you might not even know it ’ s happening – from the bank on your FX may be just fractionally pushed out as a result of you settling outside of CLS . On an individual trade basis , it may not be noticeable but this all feeds fund performance which then compounds . It ’ s important to understand that on a long-term basis .”
The decision In the lead up to the 28 May deadline , the buyside and custodians found themselves equally at ends both with each other and with CLS over its cut-offs . This somewhat heated stand-off was caused by the organisation ’ s decision not to extend its FX cut-offs to accommodate the settlement shift in the US . Participants had been calling for more flexibility from CLS for an extensive period prior to its decision
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