'Time constraint' on T+1 lending presents several challenges - Philip Flood in Global Investor
Philip Flood, Product Manager – Connect | Business Development Director – Regulatory, was recently featured in the piece below in Global Investor Group on the implications of the move to T+1.
Any “time constraint” associated with lending stocks presents several challenges for firms seeking to comply with next day settlement in the US, according to a regulatory expert.
Phil Flood of Gresham Technologies, believes the move to T+1 represents a huge market infrastructure change, a position backed up by the T+1 guide published by the Depository Trust & Clearing Corporation (DTCC)and two US trade bodies on Monday.
He told Global Investor: “Any time constraint on securities lending where the lender will either need to get the original securities back from loan, or substitute the lender with another counterparty, brings numerous challenges. Particularly in situations where the security has been sold late in the day, to effect settlement the next day. However, perhaps the biggest problem facing firms is the amount of uncertainty that could come from breaks and basic mistakes in workflows.”
According to Flood, the new T+1 guide does not only reinforce the need for firms to reassess their existing post-trade operations but: “It also puts a renewed emphasis on data quality and integrity which will be of paramount importance when transitioning to T+1,” he said.
Similarly, Philip Slavin, CEO at Taskize, believes the new ‘The T+1 Securities Settlement Industry Implementation Playbook’ highlights the impact the move to T+1 is going to have not only in the USr egion but on cross-border trading globally.
“Even though it is a US initiative, global market participants are very much affected. The problem is that market participants trading and lending US securities, from Tokyo to London for example, will have a shorter period to allocate orders that have been filled overnight. Under T+1, this process will be compressed from 48 hours to under 24 hours as new one-day settlement cut-off times will impact the next day processing in other time zones.”
Batch processing may need to take place intra-day instead of overnight and financial institutions will need to reduce inefficient communications between global financial operations teams to meet these new deadlines, he argues.
“By putting in place solutions to enable work to flow globally, market participants can achieve a greater degree of settlement efficiency, which then becomes an achievable goal,” he added.
The US aims to achieve T+1 settlement in 2024.
To discover how we can help you manage the operational and data implications of the move to T+1 settlement, contact us here.