[ W E E K 2 ]
T + 1 War Rooms – Asia :
Firms adapt to FX challenges and operational shift
The biggest challenge for participants in APAC regarding T + 1 in the US revolves around FX execution and navigating the associated funding gaps , but despite that , experts in Asia from the realms of custody and asset management report that the market has adjusted well to the change through to preparation and automation .
During the second week of the implementation of T + 1 in the US , notable shifts have emerged for market participants in the Asia Pacific region . Some report an uptick in fail rates , pointing to operational strains , meanwhile , affirmations – crucial for transaction validation – also face hurdles , underscoring ongoing adjustments in operational procedures .
But the big talking point for Asia Pacific was always going to be FX and pre-funding .
Speaking on the Asia Pacific T + 1 War Rooms roundtable discussion , market 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 it ’ s too soon to tell .
Regarding pre-funding , Phillip Van Dine , APAC head of banks & market infrastructure at Citi highlighted that most clients are now utilising automated FX capabilities . These solutions typically leverage existing loan balances or intraday credit , facilitating the injection of various currencies beyond just US dollars . According to Van Dine , this process has been operating smoothly without significant issues .
“ We anticipated greater adoption of these automated layers . A primary industry concern was whether third-party FX counterparties could deliver funds punctually to client accounts . However , based on our observations , we haven ’ t detected an uptick in fail rates or delays in settlements ,” Van Dine affirmed . “ In Asia , a growing number of clients are embracing these automated solutions or accessing intraday credit , enabling us to efficiently manage settlements where US dollars are sourced from their FX counterparties .”
TRADITIONAL WINDOWS From another perspective , a custody product manager weighed in on the term
‘ pre-funding ’: “ From our institutional custodial viewpoint , the interpretation of ‘ pre-funding ’ can vary widely . Clients typically maintain non-zero cash balances , often holding long positions in US dollars or other currencies like Aussie dollars and Japanese yen . This allows them to leverage custodial FX capabilities or intraday credit for seamless dollar transactions throughout the trading day .”
The manager noted no significant issues or concerns regarding the funding of trade settlements or the receipt of FX legs . However , granular data to pinpoint specific changes in these practices still remain limited .
Another expert emphasised that many clients are now aligning their FX bookings with traditional windows used prior to T + 1 , thanks to early completion of allocation tools within the new framework .
“ I wouldn ’ t say there ’ s anything materially different ,” they noted , echoing insights shared earlier by another custodian regarding FX strategies . “ Clients are actively managing their FX positions , seeking operational effectiveness while maintaining an agile approach . This varies widely from larger institutions to smaller firms , each tailoring their approach to fit their specific needs .”
Van Dine underscored the importance of understanding discrepancies between spot FX and same-day FX , emphasising the need for comprehensive data analysis . “ This has been a crucial area of discussion preimplementation ,” he stated . “ Quantifying these differences in spreads and their impact on funding costs is essential for markets transitioning to T + 1 . Obtaining and analysing such data will provide critical insights into liquidity and spread issues , facilitating informed evaluations of potential challenges .”
VOLATILITY WILL PROVIDE THE BIG TEST Another expert highlighted that there ’ s a notion of ‘ peacetime ’ and ‘ wartime ,’ noting how certain challenges may only become apparent during periods of volatility , making it difficult to predict ahead of time . However , identifying these aspects could potentially provide firms with more confidence in further transitioning . If
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