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T + 1 War Rooms – North America :
Organisations within North America have been pleasantly surprised with the transition to T + 1 , as comprehensive preparation and testing paid dividends for the market switch .
With a fortnight now elapsed since T + 1 go-live in North America , figures from leading institutions within the securities industry convened last week to take stock on the move so far , meeting with peers on the T + 1 War Room initiative launched by Global Custodian and The ValueExchange , in partnership with FIS .
The general consensus of the conversation was one of pleasant surprise and mutual recognition of the great work done in the lead-up to the switch to ensure the smoothest of transitions .
“ We did a series of dress rehearsals and worst-case scenario planning in the tee-up to go-live ,” one custodian said . “ Part of that was doing volume and performance testing , where we did two and four times our high watermark of volume at the critical times of 7-11pm , where client instructions may be coming in . We did that on two separate occasions to just see if there were any issues if we needed to pivot , which we didn ’ t need to .”
The discussion then turned to a poll , which asked how each organisation is performing with regards to certain processes . The results revealed that 100 % of firms founds they were doing better than they expected when assessing trade affirmations , FX execution , and securities lending recalls .
In the lead up to go-live , the DTCC had published same-day affirmation rates of 74.95 % and 83.5 % for March and April , respectively , which may have been a worry for those operating within the market and resulted in a more cautious outlook for the switch .
“ We went in with a very conservative view around expecting an increase of fails , just due to the fact that we were expecting some friction around the affirmation process in the immediate aftermath of go-live ,” a prominent broker-dealer said during the conversation . “ To be honest , we were pleasantly surprised with the affirmation rates that were well above
Affirmations under the spotlight after smooth rollout
Comprehensive preparation pays dividends for leading institutions as metrics surpass all industry expectations , but the lofty target of 100 % affirmation may be difficult to ever reach , while self-affirmation has also come under the spotlight .
what the DTCC projected and also what we projected internally .”
And those affirmation figures for the initial week were impressive . The first three days saw incrementally increasing affirmation rates – 92.76 %, 94.55 % and 94.66 %, respectively – while fail rates stayed consistent with those seen in a T + 2 environment over day one and two .
However , affirmations then dipped to 91.26 % on day four , while fails saw an uptick over days three and four . What is important to remember though , is that within the opening week there was both a double settlement day – whereby T + 2 and T + 1 transactions were settling together along with the MSCI rebalancing , an event which many believed would be a stumbling block for the new operational setup for US equities .
The numbers have since edged back up to the 95 % mark and held there .
One custodian on the call , who reported increased volumes of 75 % on double settlement day , noted : “ We ’ ve been pleasantly surprised with the level of engagement and adoption . Our affirmation rates are much higher and our fail rate has been consistent – we haven ’ t seen an uptick . Our fail rates remain the same pre-T + 1 to today .
“ From a custodial perspective , we certainly will probably never achieve 100 % affirmation . We did cross over the
4 Global Custodian Week 1