T+1 global teachings
21 Aug 2024
With America ahead of the T+1 game, international firms discuss what skills and methods they have learnt, in order to implement the faster settlement cycle in their regions
Image: maglara/stock.adobe.com
In the world of asset services, some may say T+1 is at the forefront of the industry. Different regions are at various stages of implementing the faster settlement cycle, and possibly, working towards T+0. The clearing and settlement process is crucial for investor confidence and market stability, and all eyes were on the most recent advancements in the US and its smooth transition to T+1.
It can be argued that America’s implementation of T+1 settlement has set a standard that other regions may learn from, gaining an understanding of how the process was achievable. Countries around the world now look to America’s success as galvanising their own interest in a move.
US ahead
So how has America achieved this smooth transition?
After working closely with the industry for over three years, a spokesperson at DTCC commented that the company has seen a smooth transition to T+1 settlement in the US.
They shed light on the “affirmation rates [that] have held steady at 94 per cent or better since T+1 implementation, an improvement over affirmation rates in the T+2 environment.”
They continue: “Fail rates have remained consistent with what we saw in a T+2 environment. Further, in a T+1 environment, the NSCC Clearing Fund decreased by US$3.7 billion (29 per cent) from the past quarter average value of US$12.8 billion, to US$9.1 billion.”
It seems America’s successful implementation of T+1 has urged other regions to also look into this settlement process and learn about the methods they can carry through in order to successfully implement it themselves.
America’s teachings
Whilst the US has managed to stay ahead of the game, it also acts as an example for how other countries will be able to carry out the move to faster settlement efficiently.
Despite some firms struggling to achieve this, “it is clear that moving to T+1 is made more achievable when there is cohesion in the market structure”, says Jesús Benito, head of domestic custody and trade depository at SIX.
Benito mentions that the method of having “one market with one currency, one CSD and one securities regulator” is crucial in achieving the T+1 settlement process in other areas such as Europe and the UK. He highlights that this is the reason why other regions such as Canada and Mexico have aligned with the US, further commenting that in order for T+1 to be successful in Europe, “multiple markets need to move at the same time”.
He continues that it is important to note how panellists at the recent ESMA consultation on T+1 have emphasised the “importance of synchronising the timing of this transition across the EU, Switzerland, and the UK” and deems this to be key to ensuring the successful implementation of a shortened settlement cycle.
Similarly, Arnoud Siegmann, chief operating officer at Cboe Clear Europe agrees that “good preparation usually makes for a smooth transition — as demonstrated in previous shifts, such as the migration from T+3 to T+2 and the transitions from local EU CSDs into T2S”. He highlights that it’s reassuring to see this principle confirmed once again with the move to T+1 in the US.
Global influence
As a result of America showing the achievement of T+1 is possible, Siegmann highlights that the smooth transition in the US and other jurisdictions has illustrated that the transition can be “successfully implemented without compromising efficiency”.
Thanks to America’s example, European stakeholders are now more confident that a similar transition is achievable in their region. Companies in the US may now be shifting their focus to working towards achieving T+0, but Siegmann says for Europe, companies are “still at least three years away from having this conversation, given the 2027 T+1 transition timeline currently under consideration. This discrepancy may impact the relative attractiveness of the two areas in different ways”.
Furthermore, the US’s transition has not only been the work of one company, but instead an “industry wide effort with engagement by all stakeholders”, says Siegmann. This has left companies to have similar efforts underway in the UK with equal engagement, and Siegmann expects a similar approach to be adopted in the EU.
DTCC’s spokesperson highlights the modifications that have been made to support the industry’s transition to the T+1 settlement cycle, in which other regions may have been influenced by, most notably, “the changes made to processing schedules”.
The company has worked closely with many industry representatives on the revised processing schedule which included “modifications to services provided by ITP, NSCC and DTC”.
Benito says that “transparency and cooperation” are possibly the most important lessons to be understood and learnt from the positive aspects of the US transition. He mentions that from the outset, “it is clear that this migration could have significant consequences for all market participants”. The industry in the US has seemed to fully cooperate, and be guided by public authorities and the American CSD, DTC, to conduct extensive testing ahead of the T+1 migration, he continues.
The smooth transition in the US may have raised expectations for a similarly flawless transition in European markets. Despite T+1 being seen as “a logical evolution in the market, especially given that it can be implemented and operated with current technology”, suggests Benito, from a European perspective, “there remains a need to balance political expectations with the lead time required for technical and regulatory implementation”.
Although America has served as prime example for other regions to transition to T+1, companies in Europe and the UK must continue striving to achieve and overcome any obstacles through their settlement process. The US is most likely to be ahead in transitioning to T+0, but it does not mean it is impossible for the rest to take steps forward towards it.
It can be argued that America’s implementation of T+1 settlement has set a standard that other regions may learn from, gaining an understanding of how the process was achievable. Countries around the world now look to America’s success as galvanising their own interest in a move.
US ahead
So how has America achieved this smooth transition?
After working closely with the industry for over three years, a spokesperson at DTCC commented that the company has seen a smooth transition to T+1 settlement in the US.
They shed light on the “affirmation rates [that] have held steady at 94 per cent or better since T+1 implementation, an improvement over affirmation rates in the T+2 environment.”
They continue: “Fail rates have remained consistent with what we saw in a T+2 environment. Further, in a T+1 environment, the NSCC Clearing Fund decreased by US$3.7 billion (29 per cent) from the past quarter average value of US$12.8 billion, to US$9.1 billion.”
It seems America’s successful implementation of T+1 has urged other regions to also look into this settlement process and learn about the methods they can carry through in order to successfully implement it themselves.
America’s teachings
Whilst the US has managed to stay ahead of the game, it also acts as an example for how other countries will be able to carry out the move to faster settlement efficiently.
Despite some firms struggling to achieve this, “it is clear that moving to T+1 is made more achievable when there is cohesion in the market structure”, says Jesús Benito, head of domestic custody and trade depository at SIX.
Benito mentions that the method of having “one market with one currency, one CSD and one securities regulator” is crucial in achieving the T+1 settlement process in other areas such as Europe and the UK. He highlights that this is the reason why other regions such as Canada and Mexico have aligned with the US, further commenting that in order for T+1 to be successful in Europe, “multiple markets need to move at the same time”.
He continues that it is important to note how panellists at the recent ESMA consultation on T+1 have emphasised the “importance of synchronising the timing of this transition across the EU, Switzerland, and the UK” and deems this to be key to ensuring the successful implementation of a shortened settlement cycle.
Similarly, Arnoud Siegmann, chief operating officer at Cboe Clear Europe agrees that “good preparation usually makes for a smooth transition — as demonstrated in previous shifts, such as the migration from T+3 to T+2 and the transitions from local EU CSDs into T2S”. He highlights that it’s reassuring to see this principle confirmed once again with the move to T+1 in the US.
Global influence
As a result of America showing the achievement of T+1 is possible, Siegmann highlights that the smooth transition in the US and other jurisdictions has illustrated that the transition can be “successfully implemented without compromising efficiency”.
Thanks to America’s example, European stakeholders are now more confident that a similar transition is achievable in their region. Companies in the US may now be shifting their focus to working towards achieving T+0, but Siegmann says for Europe, companies are “still at least three years away from having this conversation, given the 2027 T+1 transition timeline currently under consideration. This discrepancy may impact the relative attractiveness of the two areas in different ways”.
Furthermore, the US’s transition has not only been the work of one company, but instead an “industry wide effort with engagement by all stakeholders”, says Siegmann. This has left companies to have similar efforts underway in the UK with equal engagement, and Siegmann expects a similar approach to be adopted in the EU.
DTCC’s spokesperson highlights the modifications that have been made to support the industry’s transition to the T+1 settlement cycle, in which other regions may have been influenced by, most notably, “the changes made to processing schedules”.
The company has worked closely with many industry representatives on the revised processing schedule which included “modifications to services provided by ITP, NSCC and DTC”.
Benito says that “transparency and cooperation” are possibly the most important lessons to be understood and learnt from the positive aspects of the US transition. He mentions that from the outset, “it is clear that this migration could have significant consequences for all market participants”. The industry in the US has seemed to fully cooperate, and be guided by public authorities and the American CSD, DTC, to conduct extensive testing ahead of the T+1 migration, he continues.
The smooth transition in the US may have raised expectations for a similarly flawless transition in European markets. Despite T+1 being seen as “a logical evolution in the market, especially given that it can be implemented and operated with current technology”, suggests Benito, from a European perspective, “there remains a need to balance political expectations with the lead time required for technical and regulatory implementation”.
Although America has served as prime example for other regions to transition to T+1, companies in Europe and the UK must continue striving to achieve and overcome any obstacles through their settlement process. The US is most likely to be ahead in transitioning to T+0, but it does not mean it is impossible for the rest to take steps forward towards it.
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