CHALLENGES AND IMPACTS
T+1 transition is not a transformation limited to the settlement cycle and the settlement instruction processing. Reduction of timelines will require adaptations at all levels of capital market industry. We have participated to ESMA’s Call for evidence on the shortening of the settlement cycle, and some though have been already identified by the European Taskforce for T+1. One of the objectives of the T+1 migration is, in fact, a significant reduction in the post-trade processing window, which will make real time exceptions handling and automated reconciliation a fundamental priority. End of trading hours must be considered as well being late execution trade to be reviewed to cope with the new settlement cycle; consequently CCP/Clearer and Clearer/Broker flow of data, allowing reconciliations and the generation of related net instructions must compress process time to allow overnight settlement.
The instructions for the confirmation, allocation and settlement of the negotiations will now have to be completed in a few hours, rather than in a one-day period, leaving players with a minimum time to resolve discrepancies. For market participants, the need to adapt to this accelerated timetable is a challenging and significant aspect, both for IT enhancement costs and more generally for post trade processes knowing that each and all controls steps should continue to be done but more efficiently (strong STP approach is recommended).
WHAT NEEDS TO CHANGE
- Between investors and brokers, allocations/confirmations must be streamlined, eased and done in a shorter and strict timeframe, reinforcing current CSDR framework. Processes should be harmonized to ensure standard operating procedures reducing the number of exceptions and human intervention granting a satisfactory level of settlement efficiency.
The transition to T+1 will generate significant impacts on securities lending and repo market, forcing participants to adjust operational flows, such as recall and mobilization as well as collateralization strategies and liquidity management. Additional challenges in managing positions are also envisaged, especially but not limited to market makers.
In a T+1 context, multi-listed financial instruments are also relying in adjustments between different places avoiding increase in fail rates by requiring real-time positions monitoring and increased reliance on securities lending.
PREPARE FOR CHANGE
It should become clear, the T+1 transaction requires multiple implementations to market players. To complete automation of operations flows we need:
- the adoption of tools for real-time position update and automatic call time arrangements for securities lending;
- the development of intraday liquidity pools;
- the introduction of automatic position realignment mechanisms;
- the adoption of standardized and synchronized sealed keeping protocols for multi-listed parties including MIC code and place of settlement (PSET).
The Funds world will also be impacted, being Standard Funds or ETFs, to allow efficient funds shares management (subscription/redemption) that will require some thought to weight the impact on underlying instruments new lifecycle. Transfer agent and Fund administration/accountant activities will need deep reviews to manage properly all mandatory tasks for NAV determination and following fund shares creation.
Societe Generale Securities Services has decided to bring the issue at the centre of the debate actively participating to European working groups and sharing with the “securities services community” our view and enhancement expected though webinar and attending conferences knowing that this fundamental change for the future of the markets of the Old Continent require a strong commitment from all of us.
