Following the US shift to T+1 settlement in May, the UK is gearing up for a 2027 shift and set to benefit from “second mover advantage” according to Andrew Douglas, chair of the T+1 technical group (TGT) of the UK Accelerated Settlement taskforce (AST).
Andrew Douglas
In September the AST published its proposed recommendations for a transition to T+1 in the UK, calling for market feedback on its automation-heavy approach.
The report outlines 43 ‘principal recommendations’ and 14 ‘additional recommendations’ which are open for consultation from any and all participants in the UK equity market until the end of this month (October 2024).
Within the report are several ‘LEL’ markers – which Douglas interestingly revealed to a gathered roundtable this week is an acronym referring to ‘lessons learnt from the US’.
Having the advantage of an example has been useful, agreed panellists, with support from the regulatory community pinpointed as a principal key to success across the board.
In addition, Douglas explained, moving second has allowed for a range of cautionary tales: “For example, FX wasn’t really considered in the US but we have a work group specifically looking at FX and what the impact on that would be, and we also had the advantage of seeing what the impact of T+1 has been on stock lending so we can be smart after the event and do things differently.”
The US’ shift is demonstrably helping to pave a way, identifying where things could be done differently.
Notably, Douglas highlighted the weight of advice from US Securities Exchange Commission chair Gary Gensler who advised that other regions should “pick a date and stick to it” – an approach the UK’s Taskforce is embracing seriously.
Speaking to potential roadblocks for a UK shift, Thomas Hansen, vice-chair of the European repo and collateral committee at the International Capital Market Association (ICMA), said: “It’s a plumbing issue akin to the UK’s current problems with its water supply – the plumbing is old but [it has to be done], you have to start somewhere.”
He added: “The industry as a whole has had to become more efficient in its settlement process, front-to-back but it’s been very different the way we’ve solved this in different segments of the market […] overall it’s a massive challenge and obviously not everyone is going to be positioned the same way.”
Read more: UK settlement taskforce pencils in October 2027 for T+1 switch
Once the AST’s recommendations are finalised in December, the report states that it is expected that “the recommendations, and their compliance, will be treated as a post-trade code of conduct setting expectations of behaviour of all UK market participants and as such, could be used for supervisory purposes”.
When it comes to striking the right balance as to how many so-called ‘rules’ the market must adhere to, Douglas emphasised that the key issue lies in “over regulation versus over reliance on market practices”.
In essence, when it comes to motivations to adhere, Douglas was succinct, explaining “if you don’t do these things, you won’t be fit for purpose”.
Read more: Transition to T+1 ‘harder than expected’ finds Citi report
Despite major trepidation, the shift to T+1 in the US was largely hailed a success as the industry saw affirmation rates remain comfortably high and fail rates stay reasonably low.
This success has been largely pinned down to one key factor – the big push made by the industry to pre-emptively adapt workflows and future-proof processes, as well as the implementation of highly alert, round-the-clock ‘war rooms’ and ‘command centres’.
When asked about the notion of a safety net in the UK following the shift, the panel confirmed that there are no ‘press in case of emergency’ buttons available, and rather it will become a case of learning on the job, with those who prepare to fail bearing the brunt.
“Markets are nimble, they do sort things out, they do find a way to function,” asserted Corinna Mitchell, General Counsel at Symphony.