Torstone
Technology, a provider of post-trade securities and derivatives processing, together
with Firebrand Research, a capital markets research provider, has presented a
study regarding the challenges and impacts of plants to reduce the settlement cycle in North America and potentially in the UK over the next 24 months.
Torstone Technology Report
on Shorter Settlement Cycles
In March
2023, a study was conducted that included perspectives from the buy-side
Buy-Side
The buy-side is comprised of firms in the financial industry that purchase securities and are accompanied by account investment managers, pension funds, and hedge funds.The buy-side is composed of those that buy and invest large sums of securities with the intention of generating a lucrative return or have their funds managed. The Buy-Side ExplainedIn terms of Wall Street, the buy-side includes investment institutions that purchase securities, stocks, or other financial instruments with the aim
The buy-side is comprised of firms in the financial industry that purchase securities and are accompanied by account investment managers, pension funds, and hedge funds.The buy-side is composed of those that buy and invest large sums of securities with the intention of generating a lucrative return or have their funds managed. The Buy-Side ExplainedIn terms of Wall Street, the buy-side includes investment institutions that purchase securities, stocks, or other financial instruments with the aim
Read this Term, sell-side, and service provider market participants. The resulting report, entitled 'The British Perspective on T+1', outlines key concerns and areas of
focus for the UK market in light of North America's upcoming shift to T+1.
In addition, the report reveals considerable doubt about the practicality of the timeline leading
up to the implementation date, which was set by the United States Securities
and Exchange Commission (SEC) on 28 May 2024. Market participants expressed
significant concerns in four areas, with unanimous agreement among those
consulted for each one.
These areas
include global inconsistency and complications, Operational and technological
hurdles, Buy-side participation and operational costs. For example, participants
unanimously agreed that a landscape of shortened settlement cycles post-trade
securities operations would require a high degree of automation and efficiency.
Notably, concerns were raised regarding the middle-office confirmation and
allocation bottleneck, potential changes to asset servicing, and potential
disruptions in securities lending flows.
"The
move to T+1 in the US has an inevitable knock-on effect on global markets, with
EMEA firms facing ongoing challenges. But there is a silver lining. The move to
T+1 settlement creates opportunities for firms to improve their operational
efficiency and reduce risk. By embracing automation and digital transformation,
firms can enhance their middle- and back-office systems and gain a competitive
edge," Brian Collings, the CEO at Torstone Technology, commented on the
report.
The SEC
adopted the final requirements for shortening the settlement cycle from T+2 to T+1
on 15 February 2023. When a buyer and seller initiate a trade, the settlement
date is the number of days that have passed since that date. The settlement
date is typically denoted using abbreviations such as T+1, T+2, and T+3, where T+1
signifies that the trade was settled on the next business day following the
transaction date, and T+2 means the trade was settled on the second business
day following the transaction date.
Will the UK Feel the Negative Effects of the Change?
North
American markets have already set a for the transition to a shortened
settlement cycle. However, last year, the UK government launched an investigation to determine whether it should also move to T+1. The UK government intends
to make a decision on the matter after the UK Accelerated Settlement Taskforce
releases a report based on a year of industry consultation, which is expected
to be delivered by the end of 2023.
According
to Torstone's report, industry participants do not seem very keen on T+1 for
the UK currently, as there are many concerns regarding the move. Moving to T+1
could result in a prolonged period of increased settlement
Settlement
Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2
Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2
Read this Term failures and higher
costs for the investment community in the UK. The combined costs of penalties
associated with the Central Securities Depositories Regulation (CSDR) and
operational costs such as overdraft charges could be significant. As a result,
brokers and custodians may need to pass some of these costs on to their
clients.
"As the industry focuses on the move to
T+1, the key pain points and themes are emerging for the UK market. Cost, time
zones, and a lack of buy-side engagement are just some of the complex aspects
that require significant collaboration across the industry. Only through close
collaboration and communication can the industry effectively address the
operational and technical challenges associated with moving to a shorter
settlement cycle," Virginie O'Shea, the CEO and Founder of Firebrand
Research, commented.
Overall,
90% of study participants agreed the risk of moving to T+1 might increase the
risk of trade failures, penalties, and market inefficiencies.
Torstone
Technology, a provider of post-trade securities and derivatives processing, together
with Firebrand Research, a capital markets research provider, has presented a
study regarding the challenges and impacts of plants to reduce the settlement cycle in North America and potentially in the UK over the next 24 months.
Torstone Technology Report
on Shorter Settlement Cycles
In March
2023, a study was conducted that included perspectives from the buy-side
Buy-Side
The buy-side is comprised of firms in the financial industry that purchase securities and are accompanied by account investment managers, pension funds, and hedge funds.The buy-side is composed of those that buy and invest large sums of securities with the intention of generating a lucrative return or have their funds managed. The Buy-Side ExplainedIn terms of Wall Street, the buy-side includes investment institutions that purchase securities, stocks, or other financial instruments with the aim
The buy-side is comprised of firms in the financial industry that purchase securities and are accompanied by account investment managers, pension funds, and hedge funds.The buy-side is composed of those that buy and invest large sums of securities with the intention of generating a lucrative return or have their funds managed. The Buy-Side ExplainedIn terms of Wall Street, the buy-side includes investment institutions that purchase securities, stocks, or other financial instruments with the aim
Read this Term, sell-side, and service provider market participants. The resulting report, entitled 'The British Perspective on T+1', outlines key concerns and areas of
focus for the UK market in light of North America's upcoming shift to T+1.
In addition, the report reveals considerable doubt about the practicality of the timeline leading
up to the implementation date, which was set by the United States Securities
and Exchange Commission (SEC) on 28 May 2024. Market participants expressed
significant concerns in four areas, with unanimous agreement among those
consulted for each one.
These areas
include global inconsistency and complications, Operational and technological
hurdles, Buy-side participation and operational costs. For example, participants
unanimously agreed that a landscape of shortened settlement cycles post-trade
securities operations would require a high degree of automation and efficiency.
Notably, concerns were raised regarding the middle-office confirmation and
allocation bottleneck, potential changes to asset servicing, and potential
disruptions in securities lending flows.
"The
move to T+1 in the US has an inevitable knock-on effect on global markets, with
EMEA firms facing ongoing challenges. But there is a silver lining. The move to
T+1 settlement creates opportunities for firms to improve their operational
efficiency and reduce risk. By embracing automation and digital transformation,
firms can enhance their middle- and back-office systems and gain a competitive
edge," Brian Collings, the CEO at Torstone Technology, commented on the
report.
The SEC
adopted the final requirements for shortening the settlement cycle from T+2 to T+1
on 15 February 2023. When a buyer and seller initiate a trade, the settlement
date is the number of days that have passed since that date. The settlement
date is typically denoted using abbreviations such as T+1, T+2, and T+3, where T+1
signifies that the trade was settled on the next business day following the
transaction date, and T+2 means the trade was settled on the second business
day following the transaction date.
Will the UK Feel the Negative Effects of the Change?
North
American markets have already set a for the transition to a shortened
settlement cycle. However, last year, the UK government launched an investigation to determine whether it should also move to T+1. The UK government intends
to make a decision on the matter after the UK Accelerated Settlement Taskforce
releases a report based on a year of industry consultation, which is expected
to be delivered by the end of 2023.
According
to Torstone's report, industry participants do not seem very keen on T+1 for
the UK currently, as there are many concerns regarding the move. Moving to T+1
could result in a prolonged period of increased settlement
Settlement
Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2
Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2
Read this Term failures and higher
costs for the investment community in the UK. The combined costs of penalties
associated with the Central Securities Depositories Regulation (CSDR) and
operational costs such as overdraft charges could be significant. As a result,
brokers and custodians may need to pass some of these costs on to their
clients.
"As the industry focuses on the move to
T+1, the key pain points and themes are emerging for the UK market. Cost, time
zones, and a lack of buy-side engagement are just some of the complex aspects
that require significant collaboration across the industry. Only through close
collaboration and communication can the industry effectively address the
operational and technical challenges associated with moving to a shorter
settlement cycle," Virginie O'Shea, the CEO and Founder of Firebrand
Research, commented.
Overall,
90% of study participants agreed the risk of moving to T+1 might increase the
risk of trade failures, penalties, and market inefficiencies.
