T+0 is ‘simply not the next step’, says report
13 September 2024 Global
Image: Rodrigo/stock.adobe.com
Despite the success of the industry’s move to T+1, moving to T+0 is not simply the next step in the process, according to a recent report.
The ‘T+1 After Action Report’ was recently released by the Securities Industry and Financial Markets Association (SIFMA), Investment Company Institute (ICI), and The Depository Trust & Clearing Corporation (DTCC).
The paper reviews the general project timeline for the shortened settlement cycle, including its key milestones and achievements.
It also discusses the future of settlement cycle acceleration, in which the three entities state that a move to T+0 would require a comprehensive independent review.
The report says: “While past transitions were an evolution of industry practices, moving to T+0 would require a fundamental reinvention of a range of products and processes across the trade lifecycle and large-scale changes bring with them risks that could potentially disrupt the operations of multiple products critical to the operations of the capital markets.”
While the recent move to T+1 for the US, Canada and Mexico in May has brought benefits, industry consensus dictates that further accelerating to T+0 could introduce “significant risks and complexities”.
A move to T+0 could exacerbate market dislocations that already exist, the report suggests, which are “adding operational friction between T+1 settlement markets and those under T+2 settlement — such as the UK, EU, and certain Asian markets.
In addition, the report states that key infrastructure like foreign currency exchange settlement provided through CLS and others “could become increasingly disconnected” from what is necessary to facilitate effective same-day settlement in the US.
The success of focused experimentation involving same day settlement on a voluntary basis by certain market participants for a subset of their overall trading activity does not mean that a broad-based market move to T+0 is viable, or beneficial for the entire industry, the report suggests
SIFMA, DTCC and ICI say the industry consensus on the topic of T+0 is that it is premature.
“It would require costly and extensive changes to market operations, potentially increasing risks for both institutional and retail customers,” they add.
The three firms recommend that any action towards T+0 should be preceded by an extensive cost-benefit and risk analysis to validate the perceived benefits outweigh the risks and costs.
In conclusion, the report says the global market adoption of T+1 should be the focus for participants, policymakers and regulatory bodies, before any fundamental reworking of securities operations that would be required for T+0.
The ‘T+1 After Action Report’ was recently released by the Securities Industry and Financial Markets Association (SIFMA), Investment Company Institute (ICI), and The Depository Trust & Clearing Corporation (DTCC).
The paper reviews the general project timeline for the shortened settlement cycle, including its key milestones and achievements.
It also discusses the future of settlement cycle acceleration, in which the three entities state that a move to T+0 would require a comprehensive independent review.
The report says: “While past transitions were an evolution of industry practices, moving to T+0 would require a fundamental reinvention of a range of products and processes across the trade lifecycle and large-scale changes bring with them risks that could potentially disrupt the operations of multiple products critical to the operations of the capital markets.”
While the recent move to T+1 for the US, Canada and Mexico in May has brought benefits, industry consensus dictates that further accelerating to T+0 could introduce “significant risks and complexities”.
A move to T+0 could exacerbate market dislocations that already exist, the report suggests, which are “adding operational friction between T+1 settlement markets and those under T+2 settlement — such as the UK, EU, and certain Asian markets.
In addition, the report states that key infrastructure like foreign currency exchange settlement provided through CLS and others “could become increasingly disconnected” from what is necessary to facilitate effective same-day settlement in the US.
The success of focused experimentation involving same day settlement on a voluntary basis by certain market participants for a subset of their overall trading activity does not mean that a broad-based market move to T+0 is viable, or beneficial for the entire industry, the report suggests
SIFMA, DTCC and ICI say the industry consensus on the topic of T+0 is that it is premature.
“It would require costly and extensive changes to market operations, potentially increasing risks for both institutional and retail customers,” they add.
The three firms recommend that any action towards T+0 should be preceded by an extensive cost-benefit and risk analysis to validate the perceived benefits outweigh the risks and costs.
In conclusion, the report says the global market adoption of T+1 should be the focus for participants, policymakers and regulatory bodies, before any fundamental reworking of securities operations that would be required for T+0.
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