New York/London/Hong Kong/Singapore/Sydney/Tokyo — September 29, 2014 — A comprehensive study published by Celent and commissioned by Omgeo, the global standard for post-trade efficiency, revealed that 58% of firms in Asia Pacific are not prepared for a shorter settlement cycle in Europe which will change from trade date plus three days (“T+3”) to trade date plus two days (“T+2”) in October. Of the firms surveyed, approximately one in six firms has not started to implement necessary process and technology changes to operate in a T+2 environment.
The study also revealed, just weeks before the 6 October implementation date in Europe, that 19% of firms are not aware of the impending move to T+2. The issue of preparedness is significant with 56% of firms citing penalties for non-compliance as a major risk, while 38% of firms are concerned about failed trades and increased operational costs, according to the study.
Commenting on the research, Matthew Chan, Head of Asia Strategy at Omgeo said, “In Asia-Pacific, a shorter European settlement cycle will be particularly challenging due to operational complexities associated with time zone differences. For firms with significant European trading activity, automating processes is critical to meeting the T+2 deadline. It is also important that firms match trades on local T+1, as the current T+3 buffer for managing mismatched trades will cease to exist within the new compressed cycle.”
Shortening the settlement cycle in Europe is partly driven by the upcoming implementation of the Central Securities Depositories Regulation (CSDR) -- in development since 2012 and adopted by the European Council in June 2014 -- and Target2Securities, the new European settlement engine.
The CSDR applies to market participants located outside Europe, which means that securities trades executed on European venues by firms in Asia-Pacific will be required to adhere to the T+2 settlement cycle. Time zone differences with Europe effectively mean Asia-Pacific will be on a tighter post-trade schedule than locations in Europe.
Other key findings of the report include: 73% of firms plan to change their processes to meet the T+2 requirements for Europe, while 64% indicate they will need to upgrade their post-trade technology
- 56% of firms cited penalties for non-compliance as a key risk with 38% also concerned about increased operational cost
- 67% of firms highlight investment managers as the least prepared segment for the move to T+2
Neil Katkov, author of the Celent whitepaper said, "The move to a T+2 settlement cycle in Europe is an initiative of unprecedented scope which makes greater operational demands on firms. Without careful preparation, firms may experience greater operational risks. While many market participants are not yet fully ready, it is encouraging to see that over 80% of respondents are aware of the imminent changes and that firms are starting to think about and make the necessary preparations to comply with the deadline.”
Formed in 2001, Omgeo automates trade lifecycle events between investment managers, broker/dealers and custodian banks, enabling 6,500 clients and 80 technology partners in 52 countries around the world to seamlessly connect and interoperate. By automating and streamlining post-trade operations, Omgeo enables clients to accelerate the clearing and settlement of trades, and better manage and reduce their counterparty and credit risk. Omgeo’s strength lies within its global community and its ability to create solutions to enable clients to realize clear returns on their investment strategies, while responding to changing market and regulatory conditions. Across borders, asset classes, and trade lifecycles, Omgeo is the global standard for operational efficiency across the investment industry.
Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally experienced analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is part of Marsh & McLennan Companies [NYSE: MMC].