January 2024

Into the final straight for T+1 – Are you ready?

By James Maxfield, Chief Product Officer

2023 saw the North American regulators push forward with their long signalled intent to move the market standard for settlement of equities and bonds to T+1.

The resulting call to action saw different market participants react in different ways: some, who had already factored this into their planning, dusted off the playbook that had already been well laid out.

Working groups were kicked off to look at some of the key challenges – How would all of the system changes be aligned? What did this mean for client and counterparty readiness? How would the business impact of fail costs, financing charges and FX risk be accounted for and priced in? – and these firms moved into execution mode.

Others joined the industry-led discussions, looking for direction as firms coalesced around some of the key challenges they foresaw as requiring collaboration across participants, such as how to meet affirmation obligations, ensuring SSI data was accurate and the practical implications of moving to a T0 recall market for stock loans.

These all created good momentum for pushing towards industry standardisation of data, messaging and process to support faster settlement over time.

But the reality for most organisations is that they are stuck somewhere in the middle – knowing change is required, but uncertain how or when to approach it. The recent industry whitepaper from the International Securities Services Association (ISSA) highlights where most organisations are in their efforts to become compliant:

  • 40% of institutional investors are still in the research and scoping phases of T+1.
  • Investor readiness in North America is 88%, Europe 57% and in Asia 25%.
  • Readiness to affirm declines as firms are further eastward, with 33% of Asian respondents unclear about whether they will affirm US trades after the move to T+1.

The reality for every institution impacted by this change is that the bilateral nature of settlement places a heavy reliance on other organisations to fulfil their role within the trade processing lifecycle. In other words, it always requires someone else to do something – typically outside of your own organisation and line of control – to effect action to enable the settlement to occur.

Your ability to quickly identify exceptions will be critical to either moving in lockstep with the compressed settlement cycle, or being left behind playing catch up.

So whilst market standardisation and automation will ultimately help the industry over time, being compliant at in May 2024 will ultimately be driven by three things:

  • Your readiness for changes that need to be made in your front-to-back process to accommodate the market transition. And to the data that drives it.
  • Your post-trade data being able to tell you with confidence where you are at any given point in the settlement cycle (affirmed, matched, short, failed, settled).
  • Your post-trade organisation having the tools and operating model design to resolve exceptions intraday, rather than end of day.

Here at Duco we are helping customers across the industry spectrum execute against their data automation agendas to ensure compliance with the T+1 timeline. Our SaaS, no-code platform gives fast time to value for our customers, enabling them to quickly automate complex, manual tasks across the post-trade lifecycle. Bringing benefits in days and weeks, not months and years. 

If you are one of the many organisations still mobilising your efforts, talk to us to see how we can help bring the T+1 solutions that you need to meet your goals. We are happy to share with you our experiences and the best practices we have developed to ensure you are not playing catch up with the rest of the industry in May of 2024.