No Showstoppers for T+1 Overhaul: ISITC Panel

While no one would mistake the T+1 shorter settlement drama for a joyous Broadway musical, there are not likely to be any showstoppers as the securities industry transitions to a one-day settlement cycle after execution for U.S. equities.

So says a panel of experts assembled by ISITC for its Virtual Fall Forum 2021, held the week of September 13.

The T+1 push got serious this past February when the DTCC released a two-year industry roadmap and made its case via a new white paper, “Advancing Together: Leading the Industry to Accelerated Settlement.”

In addition, the DTCC, the Securities Industry and Financial Markets Association (SIFMA), and the Investment Company Institute (ICI) have been reprising their roles from 2017 when they led the successful T+3 to T+2 effort. They have been reaching out to financial services firms to find out how they want to make the transition.

The ISITC panel, “Move Towards T+1 & Its Impact on the Post Trade Industry,” tackled many big questions, including why the industry needs two years to make the transition.

“People have to remember that there’s a lot of capital planning cycles that have to go into this,” said panelist Christopher Butler, director, global custody product, BNY Mellon. “And to sync an entire industry’s investments testing together is a lot of work. A lot of us can say our systems can handle it, but do we have all that interoperability in place to analyze that. I don’t think there are any showstoppers, but it has to be methodical in how we handle it, so we don’t break something in the ecosystem.”

The panelists noted that once completed the T+1 push will:

  • Improve market efficiencies especially if industry participants can include processes indirectly affected by shorter settlement;
  • Lead to better data attributes and real-time data flows into the firm and then out to clients;
  • Spur greater usage of open APIs from the front to the end of trade transaction processing;
  • Cause firms to review, revamp, and improve their front-office to post-trade processes;
  • Compel firms to secure margin in a timelier fashion;
  • Give firms more reasons to tighten or even close any gaps in operational risk;
  • Make firms seek ways to make data more fluent among the different formats facilitating settlement: SWIFT, FpML, FIX, and XML;
  • And encourage firms to find ways to eliminate ongoing friction points such as the settlement failures caused by the mismanagement of Standard Settlement Instructions (SSIs).

The moderator for the panel Ahmed Elghazaly, director of investment operations for the ICI, asked John Abel, executive director of settlement and asset servicing strategy, product management group at the DTCC, about the top areas of concern among DTCC clients such as allocations, affirmations, confirmations, and other changes to come for internal and external processes.

“I think coupled with that is the impact on the DTCC processing schedule,” said Abel, whose ISITC keynote focused on T+1.

“For us to change the processing schedule is not terribly difficult but it has massive ramifications for all of our members, and we understand that,” Abel said.

The industry has been and will be spending “an awful lot of time talking about what that processing schedule should look like” from the close of trades to the beginning of settlement, Abel said. That will be necessary because of the many steps firms have to rethink, including the changes that impact foreign markets, FX, and overseas investors linked to U.S. markets. “I think that needs a broader discussion,” he added.

Abel also said that considering the T+1 concerns, the DTCC is “absolutely modernizing our infrastructure,” and looking beyond T+1 to T+0.

“We’re not sure what that [T+0] may look like if we ever get to that point. We’re configuring our systems to be able to support that. We’re exploring some new technologies. So, we’re looking at DLT [distributed ledger technology], we’re looking at APIs [application programming interfaces], and we’re looking at a number of new interesting technologies that we may be able to apply to clearing and settlement,” Abel said.

Basically, the DTCC “will go to wherever the industry wants to go next,” Abel noted.

Given the excitement over the digital journey that Ops is on, that could be many places.

Originally published in FTF News