By Samil Aslam, Research Analyst at corfinancial®
Efficient settlement processes are crucial to the smooth functioning of the securities market. The introduction of T+1 settlement, where trades are settled one business day after the transaction, has gained significant attention in recent months. This shift from the T+2 settlement lifecycle has presented both opportunities and challenges for market participants. To navigate these complexities and streamline operations, automation has become essential. In this article, we delve into the impact of T+1 settlement and highlight the need for automated solutions, regardless of the global region introducing the change.
The significance of T+1 settlement
T+1 settlement has brought about several advantages that contribute to a more efficient market. By reducing the settlement period, it minimises counterparty risk and provides quicker access to funds, enhancing liquidity. It also reduces the need for participants to tie up capital for an extended period, allowing them to deploy it more effectively. Additionally, shorter settlement cycles reduce market participants’ exposure to potential market risks, resulting in a more stable and secure trading environment.
Data and statistics have consistently shown that shorter settlement periods, such as T+1, can significantly impact market volatility. Studies indicate that shorter settlement cycles can reduce the scope for speculation and market manipulation, thereby enhancing market integrity and increasing market efficiency.
With the implementation of T+1 settlement, market participants face the challenge of adapting to a faster-paced settlement process. Manual settlement procedures that rely on cumbersome paperwork, manual reconciliation, and communication between various parties are increasingly becoming inefficient and error-prone. To address these challenges, automation is essential.
Settlement failure and non-compliance with the settlement discipline regime can harm an asset management firm’s reputation. These incidents may be perceived as a lack of operational robustness or failure to meet regulatory requirements. Negative publicity could result in a loss of client trust, potential outflows of assets under management, and damage to long-term business relationships.
Increased operational complexity and costs
The settlement discipline regime introduces new requirements and procedures, such as mandatory cash penalties and transaction reporting obligations. Asset management firms need to adapt their existing processes and systems to ensure compliance, which often involves significant operational changes. The additional complexities can strain internal resources and require substantial investments in technology and infrastructure.
Asset management firms may also face increased operational costs due to potential penalties for settlement fails. The additional expenses associated with compliance can impact profitability and potentially lead to higher fees for investors.
The move to T+1 is undoubtedly a step forward for the industry, but key questions remain for middle office or operational teams:
- Will your operational practices easily adapt to the pressures of T+1 deadlines?
- Does your trade processing technology enable you to proactively avoid trades from failing?
- Is your platform scalable enough to adapt to the demands of same-day processing activities?
- Are you prepared for custodians to change their Service Level Agreements?
- Are you prepared for your operating day to be extended?
Salerio and SureVu: automated solutions for efficient settlement
Salerio and SureVu are cutting-edge technologies that streamline the settlement process, reducing risks and increasing operational efficiency. Salerio is an automated post-trade management solution that ensures timely and accurate reconciliation of trades, automating the matching of trades across multiple platforms. By eliminating manual intervention, Salerio reduces settlement failures and minimises the risk of trade discrepancies.
SureVu, on the other hand, is an advanced tool that provides real-time insights into the settlement process. It leverages data to monitor trade statuses and proactively identifies settlement issues. With SureVu, market participants gain comprehensive visibility into their trades, enabling timely interventions and minimising settlement failures.
Automation eliminates manual errors and reduces the time spent on manual reconciliation, freeing up resources for more strategic tasks.
All of which address the bullet point questions raised above.
The introduction of T+1 settlement has ushered in a new era of efficiency and reduced risk in the securities market. However, to fully harness the benefits of shorter settlement cycles, market participants must embrace automation. Solutions like Salerio and SureVu offer the necessary tools to streamline post-trade processes, minimise settlement failures, and enhance overall operational efficiency. By leveraging automation, market participants can navigate the complexities of T+1 settlement with confidence, fostering a more robust and secure securities market for all stakeholders. Automation eliminates manual errors and reduces the time spent on manual reconciliation, freeing up resources for more strategic tasks.
If you would like to discuss any of the points raised here, please contact us at firstname.lastname@example.org or click here to learn more about corfinancial’s post-trade settlement solutions, Salerio and SureVu.