T+1: What I’d like to hear at SIBOS – part 1

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T+1: What I’d like to hear at SIBOS – part 1

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T+1: What I’d like to hear at SIBOS – part 1

Written by Tony Freemen

Sadly, I can’t make it to SIBOS this year. I was really looking forward to speaking at the SWIFT Academy session on T+1 settlement but medical issues mean that I’m grounded. I know that my colleagues Tony Gandy and Gary Wright will do a great job in discussing the findings of the recent @ISITC Europe research. I encourage you to attend – 9am Toronto time Wednesday September 20th. My other regret is not being able to visit Toronto – it’s a fantastic city. But more of that in a later post.


As I write – on 9/11 – there are 260 days to go before implementation on May 28th next year. (May 27th if you’re in Canada.) That equates to about 185 working days. It’s not a lot of time for such a fundamental change. When we conducted the ISITC Europe research the levels of awareness about US T+1 implementation varied a lot. In Japan for example some major firms appeared to be wholly uninformed. That issue appears to no longer be a big problem – but it’s a very hard issue to quantify. One other very striking issue we uncovered was a lack of appreciation about the potential impact of T+1. One of our standard questions was: “..will you able to complete all post-trade pre-settlement activities on T to meet the new instruction timetable?”. Even if the answer was “yes” many firms appeared to assume that remediation of unmatched trades would still be possible on the morning of T+1. What we uncovered was the very widespread use of the current T+1 window to fix a trade instruction. For European and Asia-Pacific firms this is entirely understandable but it’s also a feature of the US market. We were also surprised by the number of firms that still use batch processing models – sometimes done overnight. What became very clear is that the move to T+2 did not prompt a systemic improvement in processing capability. The T+1 remediation window allowed the process model to be tweaked rather than re-engineered. The move to T+1 settlement is fundamentally more complex – and implies a shift to real-time same day processing on a global basis.


Quantifying awareness is hard but measuring implementation readiness is even more difficult. When the SEC made their baffling decision to impose an incredibly tight timetable there was no real discussion about what building blocks are needed for a successful transition. One key metric that is available is the current SDA rate published by DTCC. Earlier this year it was about 70% i.e., 30% of settlement instructions arrive at DTCC on T+1 or T+2. Instead of setting an implementation date I think it would have been a lot more sensible to mandate Same Day instruction and, crucially, financially incentivize the process. When the attainment level nears 100% the market will be much better prepared.


So, it would be good if my former colleagues at DTCC could tell us what todays SDA rate is – and whether they think the market will be sufficiently prepared by May next year. And, crucially, does anyone know if the SEC is monitoring market preparation. I hope so.


And I haven’t mentioned or pre-funding or FX! More to come on these two crucial issues.