The T+1 implementation date is planned for May 28, 2024. This date is sooner than the Industry Steering Group’s recommendations to implement the change following Labor Day weekend in September and will cause additional challenges to compress development and testing plans.
In a survey conducted by the ValueExchange and sponsored by DTCC and CDS, 41% of the industry and 61% of investors have yet to begin to prepare for T+1. These findings reflect several challenges, including:
- the reality of managing daily business activities;
- competition for resources and management attention;
- a lack of recognition of the overall scale of the effort required; and
- a general sense of reliance on core vendors and clearing partners, similar to the move to T+2.
The effort to achieve T+1 extends beyond broker-dealers; T+1 is also significant to investors and global custodians, requiring technology enhancements and behavior modification. The impact is global given the market participants, issues with foreign exchange, and multiple time zones. Industry participants, particularly smaller firms, are struggling with costs and resources. There are also core challenges that remain open and must be addressed on such topics as securities lending and funding operations. For those thinking this will be like T+2, reliance on core vendors will not be an effective solution for T+1 as each firm needs to individually assess the impact on their business operations.
Firms should be actively engaged in preparation for the shortened settlement cycle. Essential steps in the process include:
Assessing Impact to the Firm
Assessments should reflect a full evaluation of the firm’s trade life cycle to identify gaps, potential control issues and open questions. Particular focus should be on identifying and evaluating manual steps within the parameters of the new time frames. Corporate actions, securities lending, foreign exchange, and funding processes will require changes. Onboarding, standing settlement instructions (SSIs), and trade allocation practices are also relevant. Firms should identify KRIs, management reporting, and escalation policies to ensure issues and concerns are quickly identified and remediated.
Developing and Implementing Remediation Plans
Firms should define the ideal future state for their business activities and the best options to achieve success. Technology adoption and improvement will be key to achieving success. T+1 is a great opportunity to start implementing the building blocks to improve your technology infrastructure and improve controls and efficiencies. Given there will be less than 24 hours to address trade issues, prior practices to “throw bodies” at the process for manual steps will not be sufficient. The Fintech community offers many new technologies and process improvements to help firms move closer to a Straight Through Processing (STP) environment.
Preparing for Firm- and Industry-Wide Testing
Testing plans and remediation will be critical in the move to T+1. Firms should be prepared to evaluate processes and procedures, and participate externally in industry-wide testing. It is important to include the client component in your testing plans to ensure they are prepared as well. Connectivity between firms, clients, market participants and central clearing counterparties is necessary, and will need to the thoroughly tested. Firms should also prepare for numerous testing cycles and provide the resources needed to evaluate results and address issues.
Oyster Consulting is the partner you need to prepare for T+1. Our consultants are experts in all aspects of front-, middle-, and back-office procedures and can help determine the impact on your firm. We are actively engaged with key service providers in the industry, including the Fintech community, technology platforms and clearing brokers. Our experts provide perspective and best practices to maximize value and reduce risk. Leverage our experience with helping firms define their strategic goals and providing a roadmap for success.