[ W E E K 3 ]
T + 1 War Rooms – Europe :
Post-implementation reviews get underway as the focus shifts to the future
As the securities industry seeks continuous improvement , efficiency and risk reduction , the back-patting and rejoicing over a successful transition to T + 1 may be filtering out finally and in its place a look at what is next .
What occurred post-28 May was certainly the best-case scenario , but while affirmation rates sit around 95 % and fails have shown few signs of a drastic increase , attention may now be turning to deeper analysis and improvement .
“[ The rates ] should be a success , which they are – it could have been a lot worse , but actually they stayed consistent ,” said one asset servicer . “ And when we look at the mandate for US T + 1 , the whole premise was to reduce risk and , arguably , the fail rate being the same maintains that risk .
“ So I think the industry needs to do some work to understand what causes settlement fails . It ’ s a similar journey that we ’ re on within Europe , but the US is making some steps in the right direction there . DTCC is exploring auto partial , which is something that we do within Europe – and I think it ’ s also noted in our group that there ’ s certain improvements being rolled out institutionally as well .
“ The message generally is that everybody involved in the process , every practitioner on whatever role they perform , will now need to look at how can they move the dial to increase that risk reduction .”
Most firms say they are waiting for a full month of data before a full analysis of the transition to T + 1 , but with the preliminary signs positive , attention is now turning to improving affirmation and fail metrics , reducing risk – as T + 1 intended - and Europe ’ s own settlement cycle shortening .
SMALL ISSUES SURFACING With some firms falling back into BAU , post-implementation reviews are being conducted , while for others , they are looking for more data – a full month from June specifically – with some deeper dives revealing small issues .
“ We did actually identify one issue through the post implementation review . We realised that a lot of our fair allocation reporting came out later in the day and lots of the portfolio managers were looking at it the next day , and so for the small number of reallocations that we were getting , it could potentially cause us a problem because we ’ d have sent out all the Swift messages and we ’ d have to undo and rematch everything ,” said one participant . “ So we ’ re trying to figure out the best way to improve the delivery of fair allocation reports and compliance – stuff that might trigger a reallocation . We haven ’ t had any issues yet , but it was something that we identified as being potential shortfall .”
Another noted : “ We ’ ve just had a few cancels and rebooks , where there ’ s been some confusion around settlement cycles , but nothing major . We are monitoring fails , but we just need a little bit more data .
“ One thing we can see is the ‘ Thursday dynamic ’ play out where you ’ ve got higher cost of trading on a Thursday because you ’ ve got an additional two days of funding over the weekend . If clients become a little bit more knowledgeable around it potentially being more expensive to trade on a Thursday – especially if it ’ s trades that are larger sizes as well – you might see a trend of volumes being a little bit lighter on a Thursday relative to other days of the week .”
Another buy-sider added : “ There are a few data items that we ’ ve identified … It ’ s more on the operational side of automated cheques where an issue we have is around usage . Cash breaches are a big issue for us . So if the fund is long or short cash , it could bridge the usage for cash rules . We have semi-automated cheques but we ’ re slowly working out new ways of identifying at an earlier stage in the process of placing a trade . So there are definitely a few things
14 Global Custodian Week 3