THETRADETECHFX DAILY cover feature door for potentially disparate and unstandardised settlement agreements across custodians with some larger buy-side clients receiving preferential treatment over smaller ones .
“ Custodians are very good at picking clients off one by one ,” said one source speaking to The TRADE ’ s sister publication Global Custodian on the condition of anonymity in May .
“ At the end of the day , it ’ s a massive spectrum . So , you can already ensure that if BlackRock reaches out to their custodian they would say ‘ right , okay , you want it 30 seconds before the settlement cut off – yeah , we ’ ll live with that ’. It ’ s not been a unilateral broadcast – they will speak to clients one-by-one-by-one and see how they can divide and conquer .”
However , while there was much ongoing discussion around the negative impacts of the decision , it would appear that at this point – given the data to hand – it may have been the right call .
Given that no decrease in average daily settlement values and volumes over the first month of T + 1 in the US was recorded by CLS in its first July update , it suggests the threat of risky bilateral settlement that had been looming may be off the cards .
What ’ s more , the potential for the buy-side to be forced to rely on inconsistent and unstandardised settlement regimes privately organised with custodian banks is looking like a concern that won ’ t materialise . Anecdotally , market participants have reported few issues with the adjusted deadlines at their custodians .
CLS had been banking on institutions adapting to the existing systems and simply making it work . Which , for now , it would appear that they have .
The shift to T + 1 As for other impacts around T + 1 and FX , speaking on a recent roundtable , experts highlighted how expected challenges , such as reduced market liquidity during T + 1 evenings , have been mitigated by earlier FX allocations , easing concerns to some extent . Other anticipated challenges have not materialised as significantly as feared , or perhaps again it ’ s too soon to tell . Participants were asked if any FX execution was occurring between the 4pm - 6pm ET window and there was a unanimous “ no change ” from the speakers .
Earlier this month , Peter Herrlin , head of client solutions capital markets and banking EMEA , Northern Trust Bank , noted : “ One thing we have not seen – which we anticipated – was towards the end of the day once Europe is closed you could have seen a widening of the spreads and liquidity of certain currency pairs falls , but we haven ’ t seen a huge impact or difference there .”
As with many other aspects of this story , we ’ ll have to wait and see . The true picture is likely something the market won ’ t have until 2025 .
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