The DTCC is seeing positive signs in terms of the numbers of firms testing for T+1, but remains concerned about smaller players who are yet to start.
Engaging those who haven’t even come to the table in terms of preparation around the multiple facets of preparation required – whether that’s testing, FX, lending, automation or understanding new timeframes and cut-offs – has been a concern from day one, and it appears that the challenge continues even with just six months left.
The industry continues to remind market participants that the process and structure will only be as strong as its weakest link.
Earlier this year, DTCC chief executive Frank La Salla shared some positive notes on the testing period which kicked off in August saying that all 30 of DTCC’s biggest members are actively testing.
Val Wotton, managing director and general manager, institutional trade processing, DTCC, told The TRADE’s sister publication Global Custodian: “Due to the number and magnitude of changes that will be required to achieve a T+1 settlement cycle, it is critical that firms conduct comprehensive and well-coordinated industry testing to ensure readiness and a successful implementation.
“While we are encouraged by the number of firms which are currently testing, we are also concerned by the number of smaller firms which are yet to start.”
Testing for T+1 commenced from Monday 14 August and will run until the implementation date at the end of May 2024.
In 2022, DTCC began working with the T+1 Industry Working Group (IWG) – which was comprised of representatives from all impacted market segments – to begin developing a T+1 test approach. As part of those plans a schedule was drawn up with 21 cycles over a nine-month period, where DTCC will load Friday end-of-day position data into the test environment prior to each test cycle.
While DTCC has sight of who is testing, the outcomes of those tests remain with the participant.
Global Custodian, has been running a series of T+1 Industry Issues Forum webinars following questions sent in by our readers to address the most pressing areas facing the market, of which the majority are related to FX among other areas. You can watch the recording of Global Custodian’s webinar on FX here.
From a process point of view, automation, staffing and system preparedness are pivotal.
Meanwhile, the challenges in preparing for the shift in settlement time continues to exacerbate the further away a firm is located from the US geographically.
A report from the ValueExchange showed that 75% of global financial market participants surveyed have now begun their preparations for the move to shortened T+1 settlement cycles, though only 57% of European investors are actively engaged, and only 25% in Asia-Pacific.
“It is crucial that market participants increase the chances of timely settlement by minimising trade failures through the automation of post trade processes such as trade allocation, conformation and affirmation and by leveraging best practices like same day affirmation and a Match to Instruct workflow,” added Wotton.