At the Association for Financial Markets in Europe (AFME) Operations, Post-Trade, Technology & Innovation Conference (OPTIC) 2022, industry experts came together in London to discuss how European capital markets, and the operational framework that underpins them, are evolving. DTCC leaders joined panels focused on post-trade settlement.
DTCC’s Matt Johnson, Director, Digital Platform Management and Industry Relations, discussed settlement efficiency while DTCC’s Andrew Douglas, Managing Director, Government Relations for EMEA and Asia, spoke about T+1 settlement. Below are highlights from their panels:
Settlement Efficiency: More Than Just Fines
While the mandatory buy-in aspect of the Settlement Discipline Regime (SDR) of the Central Securities Depository Regime (CSDR) has been delayed, there is still an industry-wide need to reduce settlement fails—for both investor protection and to promote financial stability. Cash penalties have made firms realize that while the middle office does not generate revenue, it possesses a significant ability to lose revenue due to settlement fails.
Improving Data Will Improve Settlement
Data is needed to help find the root cause of settlement fails. The behaviors causing the fails need to be addressed and market practices need to change rather than trying to force a one size fits all approach. Johnson outlined enhanced quality, industry standardization and increased frequency as three important factors for making data safe and efficient enough for markets to use.
Related: Preparing for T+1 Using ITP Data Analytics
The Impact of CSDR
Many firms used CSDR to streamline processes with a focus on managing penalties. However, there was less focus on streamlining and revamping securities trade processing. A push to T+1 could help the industry achieve higher settlement efficiency and, possibly, provide an alternative to mandatory buy-ins.
Accelerating to T+1 in the U.S.
The move in the U.S. to accelerated settlement will be the focal point in 2023, not just for the U.S., but for firms globally. Johnson stressed that this may be the biggest post-trade jump in our lifetimes, bringing a myriad of challenges – including the potential for an increase in settlement fails – as well as opportunities.
Douglas, meanwhile, outlined the general plan, noting “2022 is a year of planning, 2023 a year of building and 2024 a year of implementing. We are waiting on the Securities and Exchange Commission for the final date of implementation, expected in early 2023.”
Related: Get more information about accelerating to T+1 in the U.S. at UST1.org.
Looking Toward T+1 in Europe
European and UK participants investing in US securities will need to review their operational procedures for dealing with allocations, affirmations and settlement in the US and this will likely lead to discussions on whether the UK and/or the EU markets should move to T+1. In the post Brexit environment, it is likely that each will investigate a move to T+1 separately.