The transition to T+1 provides the opportunity for market participants to improve their technology and operations, a recent whitepaper from SmartStream says.
The whitepaper, ‘The race to T+1 settlement’, discusses the impact that the shift to a shortened settlement cycle in North America will have on global financial services organisations and financial products.
The paper affirms that the move to T+1 in the US and Canada will have a significant influence on the technology and operational workflows that financial institutions currently have in place. There will be less time for manual intervention, processes will need to be automated and regulatory directives must be put into practical technological and operational action — something the report says can be a particular challenge for capital markets businesses.
The impacts that the shortened settlement cycle will have will be enhanced by preexisting pressures, including an industry move towards digitalisation, the need to reduce operational costs and improve margins, increased data processing obligations and demands for broader asset class coverage.
Emphasising the short amount of time that the industry has left to prepare before T+1 implementation, the whitepaper notes that firms should be “well into the planning stage”, assessing the implications of the shortened settlement cycle across the trading process and identifying changes that will be required to accommodate the shift.
However, despite the pressures that the T+1 implementation date brings, the company states that it can also prompt them to look at their technology infrastructure and working practices more closely. This will allow them to improve issues of inefficiency or inaccuracy within their operations. Additionally, the shift has the potential to bring greater opportunities for innovation such as developments around AI and data checks, as firms will have access to real-time data and higher-quality reporting.
SmartStream also reports that market participants are expressing an interest in outsourcing their operations as they prepare for T+1. As a technology provider, the company outlines its capabilities around improvements in post-trade processing, reconciliations, cash and liquidity management, collateral management, corporate actions and reference data.
Currently, firms are at varying stages of preparation; some have projects underway, while others are yet to begin their work in the area, the paper states. Given that a later move to T+0 is likely, SmartStream advises that organisations invest in strong IT systems, take advantage of new machine learning and AI developments and embrace automation. The latter will also require an industry-wide improvement of standardisation, it adds.
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