The US is set to transition to T+1 on 28 May. The panel ‘Why T+1?’ at the FIX EMEA Trading Conference — made up of Bennbridge head of operations Luke Colairo; JP Morgan’s executive director, securities services, global custody industry development, Emma Johnson; Baillie Gifford’s head of trading Adam Conn; Andrew Douglas, deputy chair of the UK Accelerated Settlement Taskforce; and Securities and Exchange Commission’s (SEC) associate director, office of clearing and settlement, trading and markets, Jeff Mooney considered the effect such a move will have on EMEA markets, and what EMEA participants must do to overcome remaining challenges.
The Securities and Exchange Commission (SEC) is confident in a smooth US transition to T+1 on 28 May, highlighting the potential benefits of shortening the settlement cycle, including reduced risks and costs for market participants. Nonetheless, the SEC is continuing to monitor market efforts and that stakeholders should contact the regulator with any concerns or issues related to the transition to T+1.
With the SEC having set the stage, the wider conversation addressed the challenges and concerns related to managing risks in financial markets, including reducing collateral risk, improving communication and coordination, and transferring risk in a post T+1 world.
Despite the SEC’s optimism, the panel generally acknowledged that there is still work to be done for a successful transition, particularly as it pertains to its effects on what are global and interconnected markets. To help mitigate these challenges, the panellists’ recommended adjusting trade affirmation processes to meet the new T+1 requirements, developing solutions for the expected funding and liquidity issues, and considering adjusting trading hours or settlement deadlines to address operational challenges.
Citing one of the purported reasons for T+1 being that it will help to improve market infrastructure, one of the panellists said operational issues persist despite progress in trade matching and funding, particularly in the FX market. In order to address the disparity in settlement timeframes, they suggested an early close for the US market, to ease the time pressure.
Another panellist highlighted challenges with executing trades for clients, including liquidity issues and regulatory compliance, with disparate business days existing on different continents and timezones.
Despite the issues thrown up by T+1, one panellist said the industry is adept at managing ambiguity, citing a lack of a global standard.
Most importantly, the panel agreed that brokers, custodians and vendors should communicate with each other to address any challenges and ensure readiness for the transition to T+1 settlement, imploring those in the audience who have yet to become a member of the UK Technical Working Group, if not already.
Whatever their concerns with the US decision, firms should start talking, if they haven’t already, to their brokers, custodians and vendors, and ask for help on how they might best address any problems.
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