T+2 is Great, What About T+1—Or Even T+0?
In Europe and, on a more tame level in the US, the settlement-cycle debate has been heating up. While it appears that T+2 (abbreviation for trade date plus two days for settlement) is imminent in Europe and will eventually become a reality in the States, it strikes me as odd that T+1 isn't on the table and T+0 is considered a dream.
The other day I was speaking with Alberto Corvo, managing principal and head of capital markets for eClerx, and he said that he expects a big push coming from hedge funds for pure reconciliation solutions. Regardless of what happens on the regulatory front with T+2, buy-side firms are showing significant interest in settling trades on the same day or on a T+1 basis - otherwise they face the prospect of drowning in a sea of reconciliations.
I then asked Omgeo managing director Lee Cutrone, who has been a decades-long expert when it comes to settlement cycles, why T+1 is not talked about that much on this side of the Atlantic. He noted that there was a major push in the US for T+1 back in the late ‘90s and early 2000s driven primarily by the SIA (Securities Industry Association), but the changeover, he says, was "deemed too difficult to implement at that time."
All these years later, he adds, many of those same obstacles still exist, "and the industry as a whole seems to recognize that this would be a major behavioral - and perhaps technological - shift." If T+1 is deemed too onerous, T+0 might as well fall into the same realm as a unicorn.
While it's evident that same-day settlement will not be made mandatory anytime in the near future, I hope that Corvo (who has a horse in this race) is correct and that hedge funds are actively trying to achieve faster settlement times, and by so doing, managing to avoid the reconciliation deluge.
And maybe there is indeed a change at foot. Omgeo's Cutrone couldn't verify Corvo's sentiments, but he did say that he is seeing more desire for faster matching coming from the buy side.
"The hedge fund industry has been a big part of our growth on Omgeo CTM, our central matching solution," Cutrone says. "I'm sure the pressure these firms are feeling is contributing to the upswing we have seen in CTM."
After all, isn't it better to stay ahead of the curve and be proactive, rather than dealing with the headaches brought about by being reactive?
And Cutrone's colleague, Tony Freeman, executive director of industry relations at Omgeo, says that while T+0 is not probable, there is hope for T+1 on a domestic level.
"T+1 is feasible where the trade is domestic - i.e. it's in the same currency," he says. "But for [cross-border] trades where an FX [leg] is required, the fastest timeframe is T+2, unless the FX market also shortens its settlement cycle."
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@waterstechnology.com or view our subscription options here: http://subscriptions.waterstechnology.com/subscribe
You are currently unable to print this content. Please contact info@waterstechnology.com to find out more.
You are currently unable to copy this content. Please contact info@waterstechnology.com to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@waterstechnology.com
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@waterstechnology.com
More on Trading Tech
The IMD Wrap: No more turf wars, or why CDOs should heed the Voice of the CTO
Max reviews how our recent Voice of the CTO series has implications for those beyond a firm’s technology function, and how communication and collaboration between tech, data, and leadership will deliver better results.
Dark horse: Deutsche Börse building dark pool
New functionality allowing exchange members to execute sweep trades comes hot on the heels of European rival Euronext launching its own dark pool.
Waters Wrap: The tough climb for startups
Anthony speaks with two seasoned technologists to better understand why startups have such a tough time getting banks and asset managers to sign on the dotted line.
European firms prime for lopsided settlement in North America and at home
With T+1 imminent in North America and increasingly likely to traverse the Atlantic, operations and trading professionals in Europe are fighting on two fronts.
People Moves: Etrading Software, MarketAxess, Trumid, Nasdaq, and more
A look at the past month’s people moves in the capital markets technology and data space, including Matthijs Geneste (pictured), who will head up EU regulatory data services for Etrading Software.
This Week: Overbond, Northern Trust, FIS/Torstone, Trading Technologies, and more
A summary of the latest financial technology news.
JP Morgan DLT exec: Settlement rails needed for digital bonds to gain traction
At an Afme conference, Scott Lucas, head of markets DLT for JP Morgan, noted DLT’s progress in the bond space. Others said the tech has a long way to go before wider adoption.
Waters Wrap: Inside the mind of the CTO
After having one-on-one conversations with eight different senior bank technologists, Anthony explains how these execs look at innovation strategy from a philosophical perspective.
Most read
- Women in Technology & Data Awards 2024: All the winners
- Man Group’s proprietary data platform is a timesaver for quants
- Dark horse: Deutsche Börse building dark pool