State Street Unveils T+1 FX Solution
Posted by Colin Lambert. Last updated: October 20, 2023
In preparation for the US equity market’s transition to a T+1 settlement cycle scheduled for 28 May, 2024, State Street has revealed that it is offering an automated workflow solution and integration with post-trade infrastructure provider DTCC within the bank’s FX trading service, StreetFX.
By connecting to DTCC Institutional Trade Processing (ITP) and its central trade matching platform, CTM, StreetFX, the bank’s fully-automated benchmark FX, custodian agnostic, execution platform with a rules-based workflow, is now able to receive settlement instructions from ITP for match agreed CTM transactions. The platform will then automatically execute the required FX trade necessary to fund the purchase or sale of the related securities transaction at the next scheduled execution time designated by the client. This streamlines the FX lifecycle and enables a faster no-touch post-trade processing workflow, the bank says.
When leveraged in conjunction with the CTM Match to Instruct workflow, StreetFX executes the necessary FX trade shortly after the affirmation of the securities trade and staging at the DTCC for T+1 settlement.
The US unilateral shift to T+1 has prompted concerns in the FX industry, especially in Asia, over the ability of fund managers to effectively settle trades within the recommended payment-vs-payment method. CLS, the primary PvP FX mechanism, currently has a cut-off for daily settlement that can leave Asian investors with as little as six hours to affirm and hedge their exposures with an FX trade. European managers are also impacted by the shoft, especially with regulators in the European Union only just starting a consultation process over a prospective shift.
State Street says its solution will cut down on settlement time for FX transactions from T+2 to T+1 and lead to shorter trade cycles for investors, thereby helping to reduce counterparty risk.
“State Street is helping to drive solutions that address critical performance drivers by rolling out an automated FX execution solution to facilitate the US securities market’s transition to T+1 settlement,” says Tony Bisegna, head of State Street Global Markets. “This innovative advancement is another example of State Street’s commitment to providing industry-leading firsts to our clients.”
Val Wotton, DTCC managing director and general manager, ITP, adds, “CTM’s open architecture enables us to work with multiple firms within the industry to support the industry’s move to T+1 next year. We are pleased that our collaboration with State Street reinforces that CTM represents an efficient and cost-effective solution to address the FX trading challenges that come with a shorter settlement cycle. We look forward to working with a broad range of market participants over the coming months to help them prepare for a seamless transition to T+1.”
StreetFX is State Street’s designed to increase transparency and efficiency in FX trading. It seamlessly integrates within clients’ existing infrastructure to create an end-to-end solution that increases consistency and decreases operational risk.
CTM is a central matching platform used by end-user clients to allocate and centrally match transactions globally across multiple asset classes.