[ W E E K 4 ]
T + 1 War Rooms – Asia :
Let ’ s not get carried away and start talking about T + 0 , say experts
Experts in Asia from the realms of custody and asset management discuss the realities they faced since T + 1 was implemented , the unexpected lack of major issues but pour cold water on a near-term transition to T + 0 .
Experts from Asia Pacific have cautioned against hastily advancing to a T + 0 settlement during Global Custodian ’ s T + 1 War Rooms initiative , despite the successful transition to T + 1 .
During the fourth week of the roundtable discussions the conversation shifted towards our speakers ’ expectations versus the realities of the transition , with talk wandering into the topic of T + 0 or instant settlement . “ Don ’ t assume going from T + 2 to T + 1 means you can leap to T + 0 ,” warned one expert . “ Each step demands meticulous planning and consideration of infrastructural readiness .”
Another custodian provided a historical perspective , emphasising the evolutionary path of settlement cycles , “ Over the years , we ’ ve seen a gradual reduction from T + 14 down to T + 2 . Each step required significant adjustments , but moving below
T + 1 , such as to T + 0 , presents fundamental infrastructural challenges that cannot be overlooked .”
THE REALITY OF THE TRANSITION The discussion kicked off by participants acknowledging initial concerns pretransition , such as challenges in fail rates , affirmation rates , funding , FX lending , however , none of these issues really materialised , even in the region said to be most at risk . This sentiment was shared by many , highlighting a collective sigh of relief amidst the anticipation . One expert admitted , “ T + 1 really didn ’ t become the big kind of issue we thought it was going to be .”
It was agreed upon that one of the anticipated challenges that hasn ’ t really come to fruition as of yet was funding gaps . An expert added , “ I have to admit ,
I was sceptical whether they [ buy-side owners ] would be as well catered for as they imagined . Going back to sentiments eight months ago , everyone seemed prepared , but I was sceptical . When I asked COOs and heads of operations to walk me through the lifecycle and potential breakpoints related to FX or funding mismatches , they seemed somewhat disconnected from real risks and workflows due to being well serviced . It ’ s a double-edged sword . Fast forward to now , the sentiment is that not much has been heard .”
Without seeing any real dramatic issues , only minor ones , speakers said they have seen slightly heightened reconciliation issues because there ’ s less time to resolve them . However , these are just marginal increments in risk , and not significant problems .
One expert added that the same applied to mismatches between funds settlements cycles and securities settlements cycles , which are slightly worse , but not terrible .
“ Those already providing the service should focus on how incremental risks affect client servicing and use technology and tools to ensure that further cycle compressions don ’ t aggregate into problems . At the moment , it seems there won ’ t be any issues . As others adopt T + 1 and potentially skip to instant settlement , the transition to T + 1 from T + 0 is where the real challenge lies . This viewpoint is based on feedback from reliable asset managers and custodians alike , echoing sentiments of a job well done ,” they said .
CHALLENGES : EXPECTATIONS VS REALITY Phillip Van Dine , APAC head of banks & market infrastructure at Citi , elaborated on the FX dynamics that were a central point of concern pre-transition . “ Prior to the transition , FX transactions were settled on T + 2 , whereas now they ’ re settled on T + 1 . It was important to work with our clients to understand the operational and pricing challenges in FX funding and hedging of international securities and help them transition to the new settlement cycle . Our preparation helped us address the challenges and we continue to monitor client activity to ensure that our processes
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