The move to T1: Why are we talking about it?

Abstract

The move to a one-day settlement cycle (T1) in the US will encourage market participants to streamline settlement processes and reduce associated risk. A recent statistic from a tier one bank showed that, based on a trading volume of EUR2.5bn per day, almost 30 per cent of this (EUR700m) is locked up due to failing trades. An 80 per cent reduction in time given to settle means sustaining settlement rates will be challenging for organisations unless fundamental changes to processes are made. These changes fall into three categories: behavioural, procedural and technological. To make behavioural changes, organisations should: understand root causes of failures to increase efficiency, such as the need for several rounds of matching; maximise automation so teams in all regions have access to the same better-quality data across time-zones via the same infrastructure; and adopt data-sharing protocols for a more collaborative ecosystem with greater access to data. Procedural changes include changing batch times, giving middle and back-offices visibility into inventory and ensuring Standing Settlement Instructions are readily available and properly maintained to combat multiple in-house and vendor platforms that do not communicate. Technological advancements include the move to streamline technology stacks and operate through fewer settlement systems, avoiding the need to manage data in Excel spreadsheets and multiple platforms. Single-source providers like AccessFintech offer connectivity to vendors and drive down additional application programming interface (API) connection build costs. The market must focus on increasing automation and better interoperability and data sharing between counterparties to prepare for a proposed go live in 2024.