Getting to the point of T+1 or even T+0 will be a question of funding, investment in technology, and testing the efficiency of links and connectivity in the settlement chain, according to Samuel Riley, head of investor services and financing at Clearstream.
Riley made the comments at a SIBOS panel which discussed the methods needed to stop settlement failures and what it will take to lessen or even eradicate them.
The panel’s moderator Dominic Hobson of consulting firm Hobson Cardew asked panellists if the task and pressure to reach zero rates of settlement failure is simply too much to ask and if it is actually making the problems worse and adding more pressure for the back-office.
Steven Wager, head of direct custody and digital asset product development at BNY Mellon, outlined: “Five per cent lower fail rate would be well efficient for a functioning market place rather than a race to zero, which may not in fact be in the best interest of the industry. So very much is tied to efficiency and transparency, but settlement rates won’t be 100 per cent eliminated under T+1.”
When discussing how more standardisation could be a short-term solution to settlement failure, Hobson said: “If we negate standards and don’t follow standards as we move forward that could be an issue.”
He also discussed how data sharing between all parties in the settlement process, including custodians is of the utmost importance, and whether this notion would change if settlement were more decentralised, but he asked fellow panellists whether it ever could be decentralised.
Pataravasee Suvarnsorn, senior executive vice president of operations management at the Stock Exchange of Thailand, says: “If settlement were more centralised it would be much easier to control, reducing costs for everyone, if there was more decentralisation everyone would have to modify their system, but so far, as for the emerging market, more centralisation may be the easier option”.
Hobson went on to discuss how the implementation of Shareholder Rights Directive II (SRD II) will change the settlement process when it is introduced in February 2022, — “how will this change the outlook for both clients and custodians?”, he asked.
Peter Sneyers, CEO of Euroclear Bank, said: “February will of course see the start of the SDR II buy-ins penalties regime, but what does that mean after March, April and what will we see happening six months after that? The market will have to support clients, and that needs to go beyond just operational reporting.”
BNY Mellon’s Wager, commented: “As an industry, we will always find the money to get stuff done. If it’s a burden to our clients it’s a burden to us and we’re going to spend money to get the job corrected.”
