In January, at our inaugural UK New Frontiers event, the Securities Services business of BNP Paribas brought together a group of industry experts to discuss T+1 settlement. With implementation in the United States anticipated in a little over a year and a phased implementation in equity markets recently completed in India, it is inevitable that other jurisdictions are beginning to consider the opportunities and challenges of shortening settlement cycles.
The event opened with Peter Tomlinson (The Association for Financial Markets in Europe – AFME) who introduced the current situation in Europe and shared insights from AFME’s recent whitepaper (T+1 Settlement in Europe). This was followed by an interactive panel session moderated by Alan Cameron (BNP Paribas) who was joined by Andrew Douglas (DTCC), Gareth Jones (Euroclear UK), Emma Johnson (JP Morgan) and Gabriel Sampaio (BNP Paribas).
The group considered the developing situation in the United States and its potential as a template for other regions and jurisdictions to follow, the unique challenges of shortening settlement cycles in the complex European market and whether moving to T+1 settlement offers the UK an opportunity for post-Brexit leadership and differentiation.
Whilst views varied, several themes emerged:
- The implementation of T+1 will be more complex and have a wider impact than the introduction of T+2. Given the amount of work that has to be done in a much shorter timeframe – in particular when crossing time zones – T+1 offers unique challenges when compared to previous accelerations of the settlement cycle. It will require all market participants to be engaged and is likely to mean many will have to reassess their operating models. T+1 is going to necessitate industry-wide effort to improve operational processes and, potentially, a much broader use of automation technologies.
- No one-size-fits-all approach. There is a substantial amount of diversity in global markets in terms of scale, technology and complexity. For example, settlement activity in Europe is spread across 31 Central Securities Depositories (CSDs) whereas, in the US, it is largely concentrated in the Depository Trust & Clearing Corporation (DTCC). Whilst other implementations can offer insights, there is no template and each jurisdiction must make the decision to move to T+1 based on an analysis of the particular benefits and potential cost for their situation.
- Regardless of how broadly T+1 is adopted, the industry must focus its attention on settlement efficiency and the implementation of new technologies and infrastructures. The implementation of T+1 may not be an easy fix for settlement efficiency and its impact will be very much dependant on the specific context of the jurisdiction in which it is being introduced. Other innovations and technological developments have the potential to offer solutions to broader efficiency challenges that could have benefits beyond those of an implementation of T+1 – it is certainly not the only option.
- The focus of any effort should be on creating more efficient markets that serve investors better. Rather than implementing change for the sake of reputational or political capital, the main intention of shortening settlement cycles should be around the reduction of risk, management of cost and improvement of operational efficiency. Ultimately, the market processes and infrastructures of the future should enable greater value across the trade lifecycle and for all participants.
New Frontiers: The Opportunities and Challenges of T+1 Settlement was the first in a series of UK panel events that will run across 2023. The sessions set out to explore key themes impacting the industry and offer an opportunity to discuss emerging trends with industry peers.
If you would like to attend the next event, please contact your relationship manager. You can read our whitepaper on post-trade efficiency here.