T+1 is hot on the lips of the investment community. Following India’s successful transition in Jan 23, US and Canada are planning for early 24 and the EU and UK are currently assessing the situation. It seems inevitable that all regions at some point in the next 24 months will bring T+1 into play, and even if it doesn’t get enforced regionally, the sheer size of the US market and cross jurisdiction workflows means that if you’re in any way involved in trading securities with the US you will need to implement change.
Whilst this follows a trend of shortening the settlement cycles, T+1 could present the most challenging transition to date, essentially removing the only business day between trading and settlement. This will put huge pressure on the post-trade function particularly for global teams. And it doesn’t only impact the firms making the trades, all parties involved throughout the entire trade lifecycle will need to consistently and efficiently provide accurate information much faster than they have previously.
There are countless examples of business-critical processes that are occurring hundreds of times a day - yet are still being done manually. For example, RFQ process - many businesses are still sending out prices on spreadsheets attached to emails to clients, then receiving multiple emails back with different prices which then need to be manually consolidated into one master spreadsheet. It’s fraught with risk, both from an infosec perspective and basic human error. Furthermore, let’s think about what happens when a trade is agreed – there are so many teams and processes involved in ensuring that the trade is compliant and accurately recorded.
As the financial markets see heightened volatility this initiative is intended to reduce credit, market and liquidity risks arising from unsettled trades and enable investors to access proceeds from securities transactions much faster. Whilst on paper this sounds great the reality is that if this regulation is not addressed in a coordinated and timely manner it will have the opposing outcome.
Firms should take this opportunity to streamline and automate their processes. Relying on email and unwieldy spreadsheets will increase the risk of not being able to meet the demands of the regulators. In addition, if your competitors are offering end-to end seamless communications then there will come a time when your clients will vote with their feet and take their business elsewhere.
T+1 shouldn’t be looked at in isolation, don’t buy a point solution which will age quickly and be costly to maintain. Consider it a strategic opportunity to transform your trade processes. Look to adopt SaaS low code technology which is designed to evolve as your business and the industry moves forward.
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