Securities Industry Still Struggling to Meet T+1 Targets
Posted by Colin Lambert. Last updated: March 26, 2024
A statement from securities market infrastructure provider DTCC highlights that firms in those markets still have some way to go to meet the requirements of the US Securities and Exchange Commission’s (SEC) T+1 settlement rules, due to be implemented at the end of May.
DTCC says that market parrticipants must “ramp up their preparations and testing” if they are to satisfy the SEC’s requirement that all trades are affirmed as soon as technologically practicable and no later than end of trade date. DTCC says it recommends firms affirm over 90% of their transactions by 9:00pm ET on trade date “to maintain current market efficiencies”.
Analysis of traffic over the first two months of the year, however, shows that just 73% of transactions were affirmed by the DTC cut-off time of 9:00pm ET on trade date in January. In February, the number increased to 74.5%.
The prime broker affirmation rate was 83% in February (up from 81% in January), while the investment manager auto affirmation (central match) rate was 89% (92%). DTCC says it expects the affirmation rate to increase further, pointing out it added 26 new investment managers to the its CTM auto affirmation workflow, bringing the total to 369, although it also expects it to normalise to 92%+ ahead of T+1.
The custodian or investment manager (self) affirmation rate was 53% in February (51% in January).
While there remains considerable debate over how the FX industry could, or should, react to the T+1 change in North America, there is little it can do unless asset managers in particular are able to affirm and process the underlying securities in time to calculate and execute FX hedges for giving up to CLS settlement. While increasing affirmation rates is a good sign, there still seems much to do in the securities industry to meet the deadline of 28 May. If, for whatever reason, this deadline is missed by some firms, there will be a knock-on effect in the FX market, possibly in the form of increased trading by these managers as they estimate, and then correct, their hedges.
As far as DTCC is concerned, it is keen to maintain momentum, concluding, “We encourage continued collaboration between investment managers and their custodians. By optimising settlement workflows and embracing automation in the post-trade affirmation process, market participants will be better positioned to achieve T+1.”