[ W E E K 2 ]
T + 1 War Rooms – North America :
Russell rebalancing represents another test
Issues stemming from the move to T + 1 have been few and far between , but experts do have an eye on the impacts of the Russell Index rebalancing today , according to Global Custodian ’ s T + 1 War Rooms initiative in partnership with The ValueExchange and Citi .
One prominent asset manager stated in the conversation that it still has a war room in place because “ we ’ re now into an index rebalancing cycle , with Russell coming up it will be the highest volume of trading activity on the street – it is every single year – on 28 June .”.
Another speaker on the call noted : “ We did see in the earlier MSCI rebalance a drop off in affirmation rates on that day . So , we ’ re spending some time with some of the clients that had those challenges .”
They continued : “ It ’ s interesting though , a lot of those accounts are being used – or the funds are only used – for rebalance activity . So , they hadn ’ t necessarily had affirmation turned on at the custodian […] We saw some teething issues as it was the first time those accounts were being used as kind of working through the rebalances . I expect there ’ ll be similar challenges [ with S & P and Russell Index rebalances ]. That ’ s to be expected .”
The sentiment was echoed on the securities lending side which is also putting pressure on asset servicers and participants .
Custodians discussed that rebalancing often strains securities lending operations due to the high volume of trades and recalls .
Despite that , Eusebio Sanchez , head of execution services , Asia clusters , securities services , Citi , noted : “ Nothing really
Experts agree the big tests for T + 1 after a promising start are public holidays , market volatility and index rebalances , with a big one arriving today .
changes with how we manage passively managed tracking funds . We maintain some level of buffer for all index tracking names to account for intra-rebalancing reductions .”
Proactive strategies , such as restricting and recalling deletion names ahead of settlement dates , were discussed to minimise the impact on trade settlements and lending activities . Emphasis was placed on visibility and pre-emptive actions to handle index changes smoothly .
Sanchez added : “ Heading into the rebalance date , we typically restrict and start recalling those deletion names ahead of settlement dates . Nothing really changed at all with our passively managed clients . Overall , the experience has been positive , and we consider this quite a success .”
Another custodian raised a critical point about visibility into index changes and the proactive recalling of stocks , with this proactive approach having helped mitigate the impact on trade settlements . Citi confirmed this , noting their overall positive experience with the T + 1 transition , despite some frustration over the industry ’ s late consensus on best practices .
6 Global Custodian Week 2