T+2 is the future, says Omgeo
27 April 2015 New York
Image: Shutterstock
A study published by Omgeo has revealed that 80 percent of respondents believe T+2 will become the global standard for settlement cycles within 10 years.
Currently, settlement cycles vary between T+3 in the US, to T+2 in Europe and differing cycles across Asia, including T+2 in Hong Kong and T+3 in Singapore.
Of those surveyed, 52 percent expect the US to move to a T+2 settlement cycle within the next three years while 34 percent and 14 percent believe Canada and Japan, respectively, will do the same.
Tony Freeman, Omgeo’s executive director of industry relations, commented: “It is encouraging to see overwhelming support for a globally harmonised settlement cycle to T+2, which would significantly reduce counterparty and operational risk across the financial markets.”
“Harmonising settlement cycles globally will help to better facilitate cross-border trading, as well as reduce margin and liquidity requirements during market volatility. So far, Europe’s move to T+2 has been smooth, as recognised in the survey.”
Freeman hastened to add that wide-ranging views on failed-trade penalties were still present, as were those related to the sanctions that should be implemented for non-adherence.
He said: “The future will bring further change, with more detail expected on the settlement discipline regime.”
The survey confirmed that, in terms of Europe’s move to a T+2 settlement cycle in 2014, 74 percent of market participants believe the migration was smooth, with only 12 percent citing they would have a low chance of meeting the Central Securities Depositories Regulation (CSDR) 99.5 percent settlement efficiency target.
There was an almost equal split in opinion on whether the proposed compensatory, not punitive, sanctions from the CSDR for failed-trade penalties would be enough to drive behavioural change.
Paula Arthus, president and CEO at Omgeo, added: “62 percent of respondents believe that it makes sense to send allocations and settlement instructions to broker/dealers on trade date and that broker/dealers must confirm allocations within just two hours.”
“Furthermore, over 90 percent think that accurate Standing Settlement Instructions are relevant for T+2 settlement cycles.”
Currently, settlement cycles vary between T+3 in the US, to T+2 in Europe and differing cycles across Asia, including T+2 in Hong Kong and T+3 in Singapore.
Of those surveyed, 52 percent expect the US to move to a T+2 settlement cycle within the next three years while 34 percent and 14 percent believe Canada and Japan, respectively, will do the same.
Tony Freeman, Omgeo’s executive director of industry relations, commented: “It is encouraging to see overwhelming support for a globally harmonised settlement cycle to T+2, which would significantly reduce counterparty and operational risk across the financial markets.”
“Harmonising settlement cycles globally will help to better facilitate cross-border trading, as well as reduce margin and liquidity requirements during market volatility. So far, Europe’s move to T+2 has been smooth, as recognised in the survey.”
Freeman hastened to add that wide-ranging views on failed-trade penalties were still present, as were those related to the sanctions that should be implemented for non-adherence.
He said: “The future will bring further change, with more detail expected on the settlement discipline regime.”
The survey confirmed that, in terms of Europe’s move to a T+2 settlement cycle in 2014, 74 percent of market participants believe the migration was smooth, with only 12 percent citing they would have a low chance of meeting the Central Securities Depositories Regulation (CSDR) 99.5 percent settlement efficiency target.
There was an almost equal split in opinion on whether the proposed compensatory, not punitive, sanctions from the CSDR for failed-trade penalties would be enough to drive behavioural change.
Paula Arthus, president and CEO at Omgeo, added: “62 percent of respondents believe that it makes sense to send allocations and settlement instructions to broker/dealers on trade date and that broker/dealers must confirm allocations within just two hours.”
“Furthermore, over 90 percent think that accurate Standing Settlement Instructions are relevant for T+2 settlement cycles.”
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