T+2 is Here, but Don't Hold Your Breath for T+0

Talk of shortening the settlement cycle further is premature and ignores the upheaval it would cause.

Jim Rundle

The French have a saying, which I’m sure you’re all familiar with: Plus ça change, plus c'est la même chose, or roughly, the more things change, the more they stay the same. Then again, the French also have macédoine, so maybe we shouldn’t speak any more of the wisdom of our Gallic colleagues.

Anyway, the term has been ringing around my head over the past few weeks as I’ve edited our US reporter Emilia David’s piece on shortening the settlement cycle to T+2 in the US. When I was last at Waters, covering the sell side from London, I also covered the European move to T+2, although not with as much aplomb as Miya did in her feature.

We’ll be following up her feature with a number of spin-off pieces, and a look at how everything goes next week after September 5, when T+2 becomes the new standard in US markets for settlement. What I’ve found interesting is how much the discussion in the US has echoed that in Europe, in terms of already talking about shortening the cycle further.

It’s unclear, however, who exactly wants a T+1, or even a T+0, semi-real-time environment. For the buy side, certainly, it would put something of a crimp in the securities lending market, and undoubtedly have knock-on effects in areas such as repo, or short-term derivatives contracts.

For the sell side, I can see the benefits to an extent, but again from people I speak to, it seems there’s little appetite at present, mostly because it will involve a wholesale revamp of systems and technology processes to accommodate. The move to T+2, by contrast, has been a relatively simple one in terms of technological lift.

It would, of course, also be an enormous headache and strain for the middle and back offices, which are already stretched given the emphasis on compliance and risk in recent years, and the stringent regulations placed around areas such as settlement finality and trade reporting by regulators.

Is it likely to happen, though? Probably. Eventually. Just like 50 years from now, when everything is traded electronically, people will find the idea of the debates we have around electronification quaint and backwards. But not for some time yet.

Until then, well done to the US. You got there in the end, guys.

This week on Buy-Side Technology:

  • My colleague Anthony Malakian and I covered cybersecurity in-depth this week, with a story on the New York state regulator’s new rules for financial firms, and a segment of the podcast dedicated to exploring the story beyond what we printed on the screen.
  • After threatening to write about the Investment Book of Record again, I finally got around to it late last week. Here’s the piece.
  • Awards! Awards everywhere! This time it’s an extension to the Buy-Side Technology Awards by one week, and an announcement that entries for this year’s American Financial Technology Awards will open on Monday, September 4. Which is Labor Day here in the US, so get your colleagues in London to start those entries, as punishment for their day off last week.
  • I don’t know much about Malaysia, but luckily I have a talented Asia-Pacific reporter who does. Wei-Shen covers off how restrictions on the ringgit and other areas are pushing Malaysian money into analytics.
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