Key Highlights of Race to T+1 a path to efficient settlements roundtable

We sat down with some of the brilliant leaders from the capital markets industry, market infrastructure providers, leading industry bodies, global consulting firms, and top industry analysts at the T+1 London Roundtable. We discussed the T+1 regulatory change from the SEC, how FCA and UK firms are reacting to it, the key challenges banks and buy-side firms are facing, and the impact this will have industry-wide.

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Below are the key highlights of our discussion:

The timing for the UK's transition to T+1 could be better, considering that T+2 is functioning well on a global scale. Furthermore, the UK faces additional challenges due to the time zone difference, particularly in coordinating and reconciling trades within the shortened settlement timeframe. These challenges can result in operational difficulties when handling trade confirmations, ensuring regulatory compliance, and managing cross-border transactions.

Concerns about the rise in failed trades seem to outweigh potential future benefits. Failed trades not only disrupt the smooth functioning of financial markets but also result in additional costs, fines, penalties, and administrative burdens for market participants. They also need to make investments in infrastructure, processes, and technology to comply with this transition.

Lack of awareness adversely impacts participation. The challenge with the UK task force is that many industry CEOs need to be made aware of the discussions and fully informed about the implications, except for those who have a member of the task force. So, there is a need for increased awareness and active participation from industry leaders to ensure their concerns are heard.

Disparate challenges exist between large banks and medium and small firms. The large banks have substantial differences in their operational processes among themselves. However, Tier 2 and Tier 3 firms are more likely to be impacted, given their significant non-automated client bases. The smaller firms also don’t connect to a central SSI repository and manually process trades at the end of the day.

UK and European regulators could feel additional pressure to follow their US counterparts, given worries of misalignment with the US moving forward. Europe has to contend with multiple market infrastructures, legal frameworks, and a strict settlement discipline regime, while the UK attempts to align itself more closely with the US.

The T+1 operating model revolves around automation. A potential benefit is that building the T+1 operating model revolves around automation and investing in post-trade technology solutions, resulting in a more efficient ongoing process. We need to increase awareness rather than focus solely on risk reduction. Processing more information in a streamlined manner using T+1 can achieve risk mitigation. However, funding is still seen as a challenge. Also, UK banks trading in the US are driving short-term change to address this but are extremely concerned about when the UK will bring T+1 regulation.