Countdown to T+1 settlement: an industry at the ready?

The financial industry is on the brink of a transformative shift as major markets like the US and Canada are on the home stretch to implementing T+1 settlement by 2024. This looming transition sparks a pivotal question for financial institutions: Should they bolster in-house technology to meet the new operational demands, or is leveraging the efficiencies of outsourcing the strategic key to staying competitive?

T+1’s journey to implementation can be likened to an enduring epic, filled with anticipation and rich in complexity. This narrative, deeply rooted in the industry’s history, has unfolded over time, challenging the conventions of settlement practices. For today’s digitally-savvy generation, the very concept of delayed settlement is a foreign one, prompting queries as to why this evolution towards efficiency wasn’t pursued earlier.

As India’s phased T+1 implementation continues to demonstrate success, it sets an example for North American markets, which are now fast-tracking their efforts. The market-driven nature of this shift underscores its potential for successful integration. However, the contraction from T+2 to T+1, which significantly cuts pre-settlement investigation time, poses substantial hurdles for certain industry players.

In-House technology vs. outsourcing: a strategic crossroad

Institutions face a strategic decision as T+1 approaches: to invest in enhancing internal technological capabilities or to outsource and manage the complexities of T 1 settlement. The current trend towards outsourcing gains momentum, offering a solution to the challenges posed by post-pandemic workforce dynamics and the perceived decline in the allure of finance careers.

Emphasising the vital role of automation, industry experts advocate for robust post-trade processes to facilitate a seamless transition to T+1. This push towards automation is expected to redefine roles within the industry, shifting focus from fail management to proactive issue resolution.

The adoption of T+1 will not be isolated within North American borders; its effects will permeate through time zones and influence markets worldwide. As non-US firms with investments in American markets prepare for condensed settlement timelines, the emphasis on streamlined trade confirmations and same-day affirmation becomes paramount.

The dawn of automated efficiency

The transition to T+1 may necessitate an increase in automated operations, yet the potential benefits reach far beyond meeting the requirements of a shortened settlement cycle. By transitioning from manual to automated processes, firms can significantly diminish post-trade exceptions, mitigate reconciliation efforts, and reduce operational risk.

Firms that have traditionally relied on manual post-trade processing must now accelerate their adoption of automated solutions to ensure compliance with the T+1 deadline. Custodians and trading platforms are advised to adapt their systems and consider innovative solutions to meet the impending changes.

Embracing technological synergy for market efficiency

The move to T+1 signals an evolutionary leap for the financial markets, demanding a concerted effort to integrate technology, strategic foresight, and industry collaboration. This transition presents a prime opportunity for firms to refine their operations, boost market efficiency, and deliver widespread benefits across the financial ecosystem.