In the constantly shifting regulatory landscape, firms must constantly adapt to remain compliant and maintain a competitive edge. EMIR Refit in Europe and T+1 in North America are two of the biggest headlines of 2024, with the former going live on 29 April and the latter set for 27 May in Canada and 28 May in the US. But how is the industry coping with the preparation – and the implementation?
T+1 has been a long time coming, and to date there have been numerous concerns around how to prepare for the shift.
READ MORE: T+1 disaster planning: Prepare for the worst, hope for the best?
However, David Smith, managing director and capital markets practice lead at Broadridge, reassured Global Trading this week that “with 26 days remaining until T+1 go-live, many firms have said that they are ready for the transition on May 28th, 2024.”
Where preparations are not fully in place, Broadridge suggested, firms should focus on the elements of the transition that they can control, structuring teams to more efficiently manage exceptions when they arise.
One sector expected to be hit hard by the shortened settlement cycle is ETFs, which Brown Brothers Harriman addressed in a recent report. The firm drew attention to the potential increase in settlement fails, mismatches in European and Asian secondary market trading and enhanced pressure on securities lending programmes that the shift could bring, advising firms to analyse their ETF order settlement and portfolio trading workflows and timings.
Speaking to Global Trading on the topic, Jeff Sardinha, head of ETF solutions for the Americas at State Street, commented: “One area of concern from the industry ETF perspective is essentially trying to prepare for the unknown. Has there been enough communication to industry participants? Will all of the custodian, clients and counterparties be ready? Will there be a need for day 2 changes based on day 1 issues that may arise? How will the broader ETF ecosystem react to the change, and what will the costs look like on day 1 versus day 100?”
Resource management has also emerged as a focus area, according to Broadridge Capital Markets, with increased pressure requiring collaboration and communication.
Broadridge advises that companies send teams to each satellite in their processing chains in order to fully understand and recognise how each component is connected. Compliance departments should also be engaged in looking for practical solutions before the go-live, it added, stating that this – along with communication between the buy and sell side – has been a crucial part of problem-solving processes thus far.
Smith went on to advise: “As the industry enters its final weeks of preparation, market participants should be focused on completing their T+1 implementation plans and ensuring all necessary resources are in place for a smooth transition. This includes thoroughly testing all systems and processes, training staff on the new procedures, and communicating any changes to clients and counterparties. It’s also important to have a contingency plan in place in case of any unexpected issues that may arise during the go-live period.”
In Europe, EMIR Refit is the latest large-scale regulation to go live, coming into force on 29 April. The regulation aims to improve transparency, standardisation and data quality in derivatives markets, a goal that DTCC expects it to achieve. Speaking to Global Trading, Syed Ali, managing director for product development, change management and delivery at DTCC, stated: “The EU EMIR Refit marks a significant step towards a more transparent and resilient derivatives market, with greater standardisation of data fields and formats as well as better data aggregation and risk analysis across the system.”
READ MORE: EMIR Refit: Ready or not?
Standardisation should help to reduce the complexities associated with cross-border transactions and regulatory reporting, which in turn could improve market integrity and investor protections. “At the same time, broader adoption of standard data reporting formats also means increased interoperability and efficiency of data exchange, reducing errors and speeding up processing times within the financial ecosystem,” said DTCC.
“We anticipate steady progress as the industry navigates these regulatory changes,” Ali continued, but warned that “the coming months will continue to challenge firms”.
“Even though the EU EMIR Refit is now live, the previous reporting regime, EMIR-UK, will remain on the prior regime until this September. We expect that the 180-day adjustment periods will help firms to address most new reconciliation issues, ultimately improving consistency in matching rates over time,” he concluded.
