Seizing the T+1 opportunity

T1 settlement cycle

The move to a T+1 settlement cycle in the US, Canada and Mexico offers investment managers a new opportunity to drive growth across their organizations through a wide range of process improvements.

May 2024

It starts with embracing automation to facilitate the internal workflow enhancements that are essential for compliance with T+1 legislation. Adopting technology-led solutions offered by third-party providers can also help boost efficiencies across trading operations.

Putting these systems and processes in place will not only ensure you can efficiently manage risk and funding challenges inherent in a shortened settlement cycle; it can also strengthen your organization’s client and member service capabilities.

T+1’s impact on specific trading operations
As we’ve discussed in previous articles, T+1 will impact activities across the trade process. With the right tools and solutions, managers can facilitate T+1 compliance and capture business enhancements across their workflows through technology and automation.

As a leading financial services provider, we manage more than 10 percent1 of the world’s assets every day, providing deep insights into macro and regulatory trends and are uniquely positioned to support you in all aspects of T+1.

Affirmation models and settlement instructions
Under T+1, trades will have to be affirmed by 9 p.m. ET on the trade date. So, the trading entity must get the trade to their custodian in time for them to conduct the affirmation process and resend it to the Depository Trust and Clearing Corporation (DTCC). Manual affirmations performed by the custodian require at least two hours, and sometimes even more. This indicates that even trades delivered on trade day might not settle under the new regime, if they come through too close to the 9 p.m. deadline. Automated affirmation tools, such as DTCC’s Central Trade Manager (CTM) or Match to Instruct (M2i) can make this process quicker as they deliver pre-matched information to the custodian. 

Learn more about our trade and post-trade technology solutions, and discover how our outsourced trading capabilities can help. 

Foreign exchange (FX)
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 trades in base currencies other than the US or Canadian dollar, a timely FX transaction is required to ensure settlement of the security trade, purchase of equity funding currency or repatriation back to base currency. Trading platforms may need to be linked to align FX execution with trade settlement. We expect most FX transactions to be executed for same-day value; automation and straight-through processing (STP) will be crucial for managers to meet the new tightened deadlines.

Our FX solutions cover all forms of demand, ranging from multi-venue to single dealer. They can help meet the newly compressed deadlines for T+1 by employing electronic price streams and our comprehensive suite of FX trading algorithms, in addition to independent, open-architecture analytics and reporting tools that measure shortfalls and trading costs across the trading spectrum. You can make informed choices regarding liquidity providers, venues and execution strategies through our platform's pre-trade, post-trade and peer analytics, helping you provide proof of best executions.

Explore how our technology-driven FX solutions can support your business.

Securities lending
The transition to T+1 is expected to impact the timing of the recall process. It is important to factor loan recall time into the cycle, along with the time taken to return any collateral held against the lending transaction.

A number of circumstances can affect recall times, such as timescales stipulated in the original lending agreement and liquidity of the loaned security. The reduced trade cycle of T+1 implies future securities lending deals should take these issues into account, with future trades in mind. Additionally, custodians and other trading services providers should be given advanced information about trades involving loaned securities wherever possible.

In addition to our agency lending services, we offer direct and peer-to-peer lending solutions that support reduced T+1 timescales with speed and efficiency, driven by our electronic trading platforms, large network of lenders and borrowers, and cash collateral reinvestment solutions.

Uncover the advantages of our securities lending solutions.

Secured financing
For managers transacting across jurisdictions, shortened USD settlement cycles in comparison to other currencies and jurisdictions may present funding gaps that could trigger overdrafts. For example, under the new settlement regime, a manager selling a sterling asset to fund the purchase of a USD asset would not receive the proceeds from the sterling sale until T+2, but the USD purchase would require funding on T+1. This mismatch generates a one-day funding gap for the manager on T+1.

Access to liquidity to cover these mismatches can be acquired through our sponsored member repo offering, which provides access to highly liquid investment and financing at competitive rates with reduced counterparty credit risk. At the end of the second quarter of 2023, our total gross repo volumes exceeded US$320 billion, serving more than 150 clients across 16 eligible jurisdictions.

Our secured financing solution offers an agency lending program that allows for competitive pricing with respect to traditional overdraft facilities. Access cash from our balance sheet by pledging assets from your account. Securities are rehypothecated through agency lending performed in-house by our established agency lending program with robust operational safeguards, including dedicated counterparty risk management.

We offer a range of funding solutions to mitigate this problem, including sponsored repo and our secured funding facility.

ETF servicing
Shares in ETFs typically take longer to settle than most equities and other liquid securities as they involve the transfer of the underlying securities that make up the index, which is tracked by the fund’s portfolio. Specifically, these include products that have local emerging market exposure or funds with highly illiquid asset classes. In some cases, these securities can be listed across different time zones and jurisdictions, generating added complexities and requiring collateral to be posted a day earlier.

This complexity is best managed with a full service set of ETF solutions, including:

  • Customized basket creation, calculation and dissemination, along with fully automated processing and STP processing for rebalancing and restricted trades;
  • Transfer agent capability in many jurisdictions, which verifies that ETF units are reconciled to the DTCC daily; and
  • Risk and portfolio accounting systems for data transfer for our partners, as well as market-leading trade order management.

Find out how our ETF servicing solutions can be a strategic advantage to your business.

Corporate actions
Clients and investment managers will need to be aware that trading close to the market expiration on a voluntary corporate action may result in a shorter window to make the desired election to participate in the corporate action. In the T+1 environment, ex-date and record date will fall on the same day for dividends.

Better operations and provider solutions across this range of processes and business areas can be potentially transformational to organizations that embrace the changes that T+1 requires of them.

To realize these efficiencies and benefit from faster, more efficient trading operations, investment managers should:

  • Analyze metrics (e.g., trade volumes, fail rates, allocation rates and affirmation rates) using the baseline metrics to understand the size/volume of any specific process;
  • Consider automating manual operations wherever possible, including via available custodian, vendor and/or market infrastructure solutions;
  • Assess resource needs for modifications to working hours for internal and external stakeholders with primary operations outside of North America; and
  • Consider relationships with third-party providers within the trading ecosystem and ensure they have the systems and processes that can help to drive these improvements in institutions’ internal operations.

Discover how we can help you confidently navigate the T+1 transition.



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