[ W E E K 1 ]
T + 1 War Rooms – Europe :
the new affirmation times and with increased volumes . Additionally , market participants are similarly responding to the new changes .”
It is true that the market has already survived two major tests over the first week in the double settlement day and MSCI rebalancing . Pitts noted : “ Although our volumes on double settlement day saw a 75 % uptick , our settlement efficiency rates remained unchanged .”
One buy-side voice added : “ We ’ re just looking at the next US holiday and what that might bring – what does that feel like in the T + 1 world , especially with funding and FX ? It ’ s definitely a topic that we ’ re thinking about ahead of time and I think there will be some pre-checks on the accounts that are not USD-based currencies .”
A handful of custodians have emerged from the preparation process for T + 1 with huge plaudits . One asset manager , who hinted at some frustration towards the CLS decision not to move its cut-offs , instead praised the work of custodians noting : “ What this shows is that there ’ s been a lot of great work by everyone to be prepared in persuading custodians to move closer to that CLS deadline to allow trades to still be settling via PvP .”
NIGHT AND DAY DIFFERENCES Another interesting topic which came up was around trades settling in the day batch rather than the overnight batch , which tells a story of gross settlement and potentially additional costs from a margin perspective . One speaker noted that around a quarter of trades were settling in that day batch , mostly via clients in Europe and Asia .
“ We knew there were going to be challenges with clients outside of the US time zone , so we continue to work closely with them ,” said Pitts . “ The challenge is where our clients are intermediaries , they have end clients and everything is part of that ripple effect of getting instructions in to be processed .”
Many custodians had 24 / 7 open channels for clients during the transition – as part of the ‘ command centre / war room ’ approach – something that won ’ t last forever , so could we see some issues around affirmation rates and fails in the near future ? Possibly . But , elements of support seem set to continue over the space of a month , and by that time the market should be in its groove .
One asset manager said , when asked about concerns or worries : “ It ’ s more the longer-term items of stress testing , extending settlement stress testing , your custodian ’ s ability to afford you an overdraft , seeing what the claims do in this quarter compared to last quarter . It ’ s not the day-to-day so much now , but more those rainy day scenarios and seeing how the market reacts to that along with your custodian and your counterparts .”
The conversation between the group of participants ranging from asset servicers to brokers to asset managers could be summed up in one closing comment that “ you should probably rename this from war room to peace room ”.
12 Global Custodian Week 1