Capital markets globally are in the midst of a significant transition - the move towards shorter settlement cycles. In a recent discussion with Sibos TV, Nellie Dagdag, DTCC Managing Director, APAC Marketing & Communications and APAC Regional Manager, focused on the transition to the T+1 in North America and shared challenges for Asia Pacific (APAC) region and other global markets. The conversation focused on three key topics:
- The Need for Preparation
Dagdag elaborated on the difficulties faced by the APAC region during the shift to the T+1 cycle. She remarked, "The unfamiliarity with the U.S. post-trade market, and the need for funding and Forex, are some of the challenges."
Accordingly, Dagdag emphasized the importance of preparation and self-assessment for firms in APAC, leveraging the experiences of the U.S. and India. She highlighted, "Each market needs to determine its own rationale for moving to T+1 and tailor actions accordingly."
- The Role of Regulation and Automation
The discussion highlighted regulation and automation as two major pillars for a successful transition to T+1. Regulatory mandates are desirable, according to Dagdag, but they are not always necessary. Rather, she identified "regulatory certainty" as crucial to the transition.
Dagdag pointed out the importance of automation and straight-through processing in this shift. This automation reduces inefficiencies and enhances the overall process. The dynamics of the financial markets necessitate the adoption of automation and straight-through processing and is a crucial factor for a successful T+1 transition. Firms that leverage this technology can reap immense benefits: advanced operational efficiency, faster settlement and reduced risks associated with human errors.
- Trend Towards Shorter Settlement Cycles
Dagdag also shed light on the global trend of moving towards T+1 and ultimately, T+0 settlement. It was noted that currently, more than half of the global markets are already on a T+1 settlement cycle, with an estimated 80% or more moving to T+1 by 2027.
This transition is not a competition but a matter of readiness and evolution in operation models. The choice of settlement cycle depends upon market segment, asset class, and transaction nature. They cited the example of India's T+0 settlement, driven by retail investors and the pre-funded, pre-delivered market structure, contrasting with the intermediated institutional market in the West.
For more insight we encourage you to watch the full conversation on Sibos TV.