FinTech companies sceptical of SEC’s statement on T+1
22 May 2024 US
Image: Baton Systems/Taskize
A number of FinTech companies have raised potential issues ahead of the implementation of T+1 in North America.
Alex Knight (pictured left), Head of EMEA at Baton Systems, and James Pike ((pictured right), interim CEO of Taskize, have concerns about the pressure a shorter settlement cycle will place on the industry.
Knight argues manual processing will struggle with the increased working hours. He states: “It’s going to be a tough ride with a lot of stressed people working longer hours to meet these new, tighter timeframes. Overall, the market has been relying on post-trade processes that require manual intervention for way too long.
“While far from ideal from a cost and efficiency perspective, that worked when there was plenty of time to fix things, but now that we’re moving to much shorter timelines, the pressure is well and truly on.”
Pike believes the industry is unprepared for T+1. He explains: “I think industry participants are partially ready. They have addressed their technological challenges of moving from operational processes from T+2 to T+1, but have not prepared fully for the increased number of exceptions likely to be generated through the shift, and therefore need to be better prepared around exception processing.”
These concerns come amid the US Securities and Exchange Commission (SEC) releasing a statement that welcomes the transition set to come into force in the US on 28 May.
In the statement, SEC Chair Gary Gensler said: “For everyday investors who sell their stock on a Monday, shortening the settlement cycle will allow them to get their money on Tuesday.
“Shortening the settlement cycle also will help the markets because time is money and time is risk. It will make our market plumbing more resilient, timely, and orderly. Further, it addresses one of the four areas the staff recommended the Commission address in response to the GameStop stock events of 2021.”
In 2017, the SEC successfully shortened the settlement cycle from T+3 to T+2. The agency admits that the movement to T+1 could create “a short-term uptick in settlement fails and challenges to a small segment of market participants.”
Alex Knight (pictured left), Head of EMEA at Baton Systems, and James Pike ((pictured right), interim CEO of Taskize, have concerns about the pressure a shorter settlement cycle will place on the industry.
Knight argues manual processing will struggle with the increased working hours. He states: “It’s going to be a tough ride with a lot of stressed people working longer hours to meet these new, tighter timeframes. Overall, the market has been relying on post-trade processes that require manual intervention for way too long.
“While far from ideal from a cost and efficiency perspective, that worked when there was plenty of time to fix things, but now that we’re moving to much shorter timelines, the pressure is well and truly on.”
Pike believes the industry is unprepared for T+1. He explains: “I think industry participants are partially ready. They have addressed their technological challenges of moving from operational processes from T+2 to T+1, but have not prepared fully for the increased number of exceptions likely to be generated through the shift, and therefore need to be better prepared around exception processing.”
These concerns come amid the US Securities and Exchange Commission (SEC) releasing a statement that welcomes the transition set to come into force in the US on 28 May.
In the statement, SEC Chair Gary Gensler said: “For everyday investors who sell their stock on a Monday, shortening the settlement cycle will allow them to get their money on Tuesday.
“Shortening the settlement cycle also will help the markets because time is money and time is risk. It will make our market plumbing more resilient, timely, and orderly. Further, it addresses one of the four areas the staff recommended the Commission address in response to the GameStop stock events of 2021.”
In 2017, the SEC successfully shortened the settlement cycle from T+3 to T+2. The agency admits that the movement to T+1 could create “a short-term uptick in settlement fails and challenges to a small segment of market participants.”
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