T+1 and FX considerations

T Plus FX

What are the key considerations for investment institutions to successfully comply with the upcoming T+1 settlement cycle requirements?

November 2023

Tara Taylor
Managing Director of FX Sales and Trading and head of StreetFXSM and Indirect FX Services Americas

Investment institutions and their partners must enhance trade process efficiencies that are required to comply with the upcoming T+1 rules. This necessitates seamless integration with those institutions’ foreign exchange (FX) capabilities, particularly for equity trades involving an FX component.

Cross-border trades requiring currency conversions need the FX elements of the deal to be completed in concert with the equity trade. This enables the trades to meet the truncated settlement and completion timeline required under T+1 rules. As such, closer alignment of FX workflow and execution with trade settlement becomes increasingly important post-T+1 implementation. For investors with base currencies other than the United States or Canadian dollar, a timely FX transaction is required to ensure settlement of the security trade, purchase of the equity funding currency, or repatriation back to base currency.

Though FX can be arranged at any point during the security life cycle, it is conventional to instruct the FX after security affirmation to allow for accurate funding of the underlying security trade. We believe automation of the FX execution process will be of paramount importance in meeting these new shortened deadlines. Organizations should consider factors, such as time and time zone of the location from which the order is sent, whether balances are to be kept in USD or other relevant currencies, and how to conduct order management processes as quickly and early as possible.

A US-based FX trading function, either on an in-house or outsourced basis, is also likely to be an advantage. In a previous article, we discussed integration with the Depository Trust and Clearing Corporation (DTCC) — the largest settlement and clearing organization in the US. As with other areas affected by T+1, this will also involve technology that seamlessly exchanges FX data with the DTCC in a way that’s compatible with their automated data management systems. Crucially, this also requires less reliance on manual data management processes from both institutions and their trading service providers, such as custodians.

State Street/DTCC FX integration
Last month, in preparation for the US equity market’s transition to a T+1 settlement cycle, we announced that we are offering an automated workflow solution and integration with the DTCC within our FX trading service — StreetFX.

By connecting to DTCC Institutional Trade Processing (ITP) and its central trade matching platform, CTM®, StreetFX is now able to receive settlement instructions from DTCC ITP to match agreed CTM transactions.

StreetFX automatically executes the required FX trade necessary to fund the purchase or sale of the related securities transaction at the next scheduled execution time designated by the client, streamlining the FX life cycle and enabling a faster no-touch post-trade processing workflow.

When leveraged in conjunction with the CTM Match to Instruct (M2i) workflow, StreetFX executes the necessary FX trade shortly after the affirmation of the securities trade and staging at the DTCC for T+1 settlement.



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