At the Securities Finance Symposium in London, four industry members argued that automation will be incredibly vital to a smooth transition to a shorter T+1 settlement cycle in the securities finance industry.
Moderated by Adrian Dale, head of regulation, digital and market practice group at ISLA, the panellists shared their own experiences from North America’s own shift in May 2024 — largely accepted as a general success.
Introducing the topic, Dale offered a stark prediction that this is a “new regulation on the block. This topic is what we will be talking about for the next three years”.
Matt Johnson, director for ITP Product Management and Industry Relations at DTCC, explains that from his client’s US perspective, “there was a heavy focus on automation. Firms looked at their own operating models, architecture. What the US did was it highlighted the focus on regulatory backing.”
He continues to point to the impact that the SEC’s decision to set a date by which all members of the industry must transition, as key to making the transition as smooth as possible. He suggests that this could be a key lesson for the UK and Europe.
Johnson later stresses that improving behaviour in the markets should be at the forefront of the regulators’ minds.
“One thing that is incredibly difficult to change is how to get better behaviour in our markets,” Johnson says before asking. “How can we reduce friction points? How can we achieve standardisation? That is how we will achieve better behaviour in markets.”
Calling on the regulators to take initiative, he insists: “Regulatory backing is hugely beneficial. The post-trade code of conduct is the right thing to do and market participants need to adhere to that.”
Steering the conversation towards a more securities finance-specific focus, Gabi Mantle, global head, Post-Trade Solutions at EquiLend, says that they worked with their clients to improve their recall process.
She explains that previously, recalls had been heavily reliant on manual processes, including sending emails — an issue which often led to the slow processing of recalls and increased the likelihood of manual risk.
She explains that the adoption to their more automated version of recalls was initially “slow but steady”. However, three weeks before the shift to T+1, there was an influx of adoption and “we saw the volumes of recalls triple and a lot of firms had adopted the automation.”
She adds: “Everybody knows they need to automate, but there are still challenges.”
For Bill Meenaghan, CEO and founder of SSImple, automation will be key to overcoming those specific challenges. He explains that if the entire process has adopted automation and there is a level of standardisation, then “that is going to get you to a point where recalls will become more efficient.”
He continues to explore the impact on Standing Settlement Instructions [SSI], adding plainly: “SSIs should be automated from the point of them being issued, usually by a custodian or prime broker.”
“This is the time we begin to look at that,” Meenaghan says. “If you can automate properly at the beginning of the process and allow every member of the industry access to the SSI data on a permissioned basis, that is the right way to properly automate the SSI process.”
Despite the panellists' insistence on automation, Meenaghan offers a realistic prediction. He warns: “We may not have finished the SSI automation process by the time T+1 goes live at the end of 2027, but it is a goal we should aim for.”
Image: Jack McRae 