[ W E E K 3 ]
T + 1 War Rooms – North America :
Three weeks into T + 1 settlement in the US and the positive feedback has been resounding due to the efforts of the industry in the build-up to the seismic market structure change .
According to data drawn from participants in our War Rooms initiative , nobody has reported any areas – affirmations , FX , funding gaps , securities lending recalls , manual exception handling and fail rates – as performing worse than expected . Instead , many of these areas have surpassed expectations , with some seeing fail rates improve on those seen in a T + 2 environment .
While the success may not provide the eye-catching headlines we anticipated , the accomplishment itself has become the story .
However , the industry is still looking at the 1 % of outliers and how those issues or specific counterparties can meet the standards set by the other 99 % of the industry .
Part of this effort may come down to individual counterparty monitoring and calling out brokers , custodians or segments of the market which are lacking in affirmation , matching or timeliness .
Multiple buy-side voices have said they are doing so , some continuing the process they have always done just with more focus , and others having the
“ We ’ re definitely looking – as a start – by broker ,” said one asset manager . Another noted : “ Obviously , there ’ s additional attention just to make sure that everything is aligned , but we just basically rolled it into our ongoing reviews of how we are performing . It ’ s not just counterparties , but it ’ s specific markets , specific vehicles , counterparties and custodians – we look at it in four degrees .”
During a roundtable from our first week of War Rooms , one asset manager said : “ We had a 96 % affirmation rate , but there was only one errant broker who was consistently not affirming their trades . And right up until Friday that was the case . But I do think it was largely to do with the fact we threatened to stop trading with them if they didn ’ t comply , which they promptly did comply . That could be an area where it comes back over time if those people don ’ t keep that hyper care focus to it .”
Another speaker added : “ Look , there ’ s a couple of counterparties that aren ’ t on CTM that aren ’ t building or billing the
Is it time to hone in on individual counterparties ?
One month in , it is still difficult to pinpoint any major issues or changes stemming from the shortened settlement cycle . Instead , attention may turn to individual counterparty monitoring to highlight any laggards .
confirmations in time for affirmation . So that ’ s been more kind of targeting those smaller counterparties to say ‘ look , when are you going to be ready ?’”
This is very much an industry now striving for perfection , after probably factoring in that there would be more issues in the transition than there has been .
One speaker noted that while a handful of metrics have been published , there are about 40 other metrics which have not been made public which are either at par to where they were prior to the conversion or better . Data is still likely to come out from adjacent sectors in the coming weeks or months which could have different results by region or function , but for now the industry is still commending its work in the build-up to 28 May and the hyper focus in the opening weeks .
“ The industry effort on this speaks for itself ,” said one of the world ’ s largest asset managers .
Michele Pitts , global head of custody data , securities services , Citi , added : “ We haven ’ t seen any specific issues and we are still tracking and monitoring late instructions sent by clients . I will say that our volumes pre 09:00 p . m . deadline were much higher than what we had anticipated because of this so that ’ s been a pleasant surprise . Our affirmation rate has been higher as well .
“ We have not seen a significant spike in extended settlements and things are much more seamless than expected . We ’ re not seeing any knockdown issues in funding or FX . So it ’ s almost as if everyone was perfectly aligned for go live … and our overdrafts , pre and post , are at similar levels to pre T + 1 .”
One interesting soundbite from the discussion – which took place just over two weeks after the switch to T + 1 – was that one specific custodian had reached out to a buysides organisation to state that they would be passing down the entire penalty clause for unaffirmed trades to the client .
The custodian was not named , but the panel seemed bemused by the concept .
“ I haven ’ t heard that from any of the others , but that ’ s something that we saw coming from one custodian . And we ’ re trying to understand : how do they track it ? That part that ’ s still not clear .”
Another speaker who found the notion fascinating said : “ I think it was anecdotally bounded around that it would be passed through . But to your point , there ’ s the concept and then there ’ s the practicality of the actual calculation ? If you ’ re going to pass something through , then the numbers need to reconcile . It needs to be calculated on the same basis .”
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