THETRADETECHFX DAILY
In two years’ time, the UK, EU, Liechtenstein and Switzerland will transition to T + 1 securities settlement. This means FX market participants have limited time to adapt to compressed settlement windows. And the countdown has already begun.
With 35 % of EU market participants still unclear what T + 1 means in practice, preparedness remains a pressing issue. CLS chief growth officer Lisa Danino-Lewis recently joined John Walsh, global product and market information vice president at Fidelity, Aziz Arib, FX product manager at Citi, and Global Financial Markets Association MD Andrew Harvey to talk about what Europe can learn from North America’ s successful T + 1 transition.
Setting the scene Europe benefits from closer alignment with CLS deadlines than the US, and analysis of CLS transaction data indicates that a value equivalent to just 0.1 % and 0.4 % of the CLSSettlement average daily value( ADV) is executed on a T + 1 basis in the UK and EU, respectively.
Yet in absolute terms, the numbers are significant. Today, CLS settles around $ 8 trillion a day, so even a fraction of a percentage represents a large volume of transactions, explained Danino-Lewis.
“ This is where the preparation comes in. How do market participants execute and settle those FX transactions in a timely manner to ensure they’ re still aligned with the FX Global Code, payment-versuspayment settlement, and – where they need to – with netting,” she said.
What should FX market participants do now?
1. Start planning early The US transition showed that while the move to T + 1 went relatively smoothly, individual firms still needed to overhaul operating models and introduce new systems to ensure they could meet custodian cut-offs.
Europe will be no different. Firms must automate internal processes wherever possible and gain full visibility of custodian cut-offs to ensure that FX funding and settlement align with accelerated settlement cycles.
Walsh set out a simple roadmap: 2025 is for planning and budgeting, 2026 for building new systems, and 2027 for testing them.
“ This is your planning time, so get the right people in the room, not just from your organisation, but your vendors too,” Walsh said.“ Start mapping out your pain points and identifying the risks.”
2. Understand operational risks and expand automation The compressed post-trade window makes manual processes unsustainable. To prepare for T + 1, firms must address both time zone
Preparing FX for T + 1:
Lessons from the US, priorities for Europe
Executives from CLS, Citi and the Global Financial Markets Association sit down to discuss the European transition to T + 1, lessons from the US, operational priorities and practical steps for organisations.
and workflow challenges by investing in automation, reviewing time-sensitive steps, and coordinating closely with custodians, Arib said.
Options include relocating or extending operations to be closer to Europe, using third-party FX providers and prefunding trades, though each carries cost and complexity that must be understood, he added.
“ I would strongly encourage market participants to proactively reach out to their service providers, custodians and CLS, and discuss their concerns and explore potential solutions,” Arib said.
It can be difficult to know where to begin. Walsh suggested starting with a simple exercise: map out the trading day against market volatility, custodian deadlines, and manual touchpoints. Firms should also anticipate stress points, such as unexpected liquidity events such as public holidays in large markets like China or the US.
With two years to go, these risks can be mapped methodically, but“ you don’ t want to be doing this in 2027,” Walsh added.
3. Embed the FX Global Code and settlement risk waterfall A shorter window for FX trading and posttrade processing increases the opportunity for settlement fails. The settlement risk waterfall described in the updated FX Global Code, published in January, provides a useful framework for risk mitigation. Prioritising PvP settlement is key. Where PvP isn’ t available, firms should reduce exposures through netting. And where neither option is
22 THETRADETECHFX DAILY