[ W E E K 3 ]
T + 1 War Rooms – Asia :
and we consider this quite a success .”
Andrew Lawson , executive director of product management at JP Morgan , highlighted some other minor issues the custodian had seen : “ From a custodial settlement perspective , we ’ ve noticed a slight uptick in overall settlement rates , which is positive .”
Another custodian observed that within their own business , as anticipated , they ’ ve seen an increase in both the number and value of lending fails . Despite this , these figures aren ’ t significant when considering the overall picture . Historically , lending recalls haven ’ t been the primary cause of settlement fails ; issues like counterparties lacking stock or settlement instructions have been more prevalent ,” they added .
Interestingly , addressing these other issues seems to have had a more substantial impact than the rise in loan recalls . So , despite the expected uptick in loan recall
fails , the net effect on settlement rates remains positive .
Sanchez observed no significant change in lending volumes post-migration but noticed a shift in behaviour . Historically , most lending activity for US and other North American markets was handled from US desks . He said : “ Now , we have observed an increase in T0 locates for US and North American Equities ( Canada / Mexico ) prior to those markets opening , around midday in EMEA . Consequently , we ’ ve enhanced our EMEA desk capabilities to accommodate this shift in demand . Overall lending activity remains stable , with only minor adjustments in behaviour patterns .”
CUSTODIAL CHALLENGES AND BORROWER DYNAMICS JP Morgan ’ s Lawson raised a critical point about visibility into index changes and the proactive recalling of stocks . This proactive approach helped mitigate the impact on trade settlements . Citi confirmed this , noting its overall positive experience with the T + 1 transition , despite some frustration over the industry ’ s late consensus on best practices .
Sanchez acknowledged the challenge of removing significant prime finance counterparts from its borrower list but emphasised ongoing conversations with significant beneficial owner clients , which are part of the Global Peer Financing Association ( GPFA ), to influence the borrowing community .
Sanchez added , “ Our primary discussions have been bilaterally with each borrower . As mentioned , there ’ s a fringe area of exposure for beneficial owners and agent lenders currently , but we ’ re focusing on this fringe . The US equity market remains the most liquid securities lending market globally , with total assets available for lending comprising almost half of all lendable inventory . In practice , the vast majority of client sales do not require a recall as shares are not on loan or can be substituted within the agent lender ’ s own pool of assets .”
INFLUENCE AND ENFORCEMENT IN SECURITIES LENDING The conversation shifted towards enforcing new practices within the securities lending community . Sanchez noted that Citi is leveraging the influence of significant beneficial owner clients and the GPFA to encourage borrowers to adhere to the new cut-off times . Direct bilateral discussions with borrowers are ongoing , and while removing noncompliant borrowers from the list is challenging , there is a concerted effort to ensure broader compliance .
Despite the T + 1 shift , Sanchez observed that lending volumes have remained stable . However , there has been a notable shift in behaviour , with increased demand for same-day settlement of US and North American instruments before midday in EMEA . This shift has led to enhanced capabilities on Citi ’ s EMEA desk to accommodate the new demand patterns .
26 Global Custodian Week 3