T+1 is currently slated for implementation in 2024, and if you aren’t planning for it now, you’re probably late.  T+1 is more than a technology compression event – it will also require behavioral changes on both the buy and sell sides. In today’s Oyster Stew podcast, experts Jeff Gearhart, Frank Childress and Jose Fernandez share the six things your firm should be doing to prepare for implementation.


Transcript provided by TEMI

Libby Hall:  Hi, and welcome to the Oyster Stew podcast.  I’m Libby Hall, Director of Communications at Oyster Consulting.  T + 1 is slated for implementation in 2024, and if you aren’t planning for it now, you’re probably late.  T + 1 is more that a technology compression event.  It will also require behavioral changes on both the buy and sell side.  In today’s podcast, experts Jeff Gearhart, Frank Childress and Jose Fernandes share the 6 things your firm should be doing to prepare for its implementation.  Let’s get started.

Frank Childress:  Well, welcome. My name is Frank Childress and today I’m joined with Jeff Gearhart and Jose Fernandez.  We’re all part of Oyster Consulting’s Trading and Markets Practice. We’re here to discuss Part Two in a series of podcasts that we’ve launched on the industry regulatory initiative of T + 1.  Jeff, I understand you have just come from some industry conferences as well as I know there’s been some DTC webinars. What have you recently learned from the conference?

Jeff Gearhart:  Sure, thanks Frank. Some quick notes in case you haven’t heard yet UST1.org is the industry webpage for access to information. If you’re not checking that out periodically, you probably should be.  That’s UST1.org. Some of the other news, some of the timeframes that are changing.  Allocations will be on 7:00 PM on trade date; affirmations by 9:00 PM on trade date. So that gives you a flavor of how things are going to change pretty quickly. Remember affirmations used to be by 11:30 AM on T + 1, but in the new world, I think we’ll be settling the trades by then.  Some other news – the industry playbook.  There will be a playbook for T + 1.  It’s supposed to be published in July, hopefully second or third week. We’ll see.  Stay tuned for that as well as a functional paper in July.  The testing script or outline will be by the end of November, and something relevant to all of us.

SEC rule changes the rules that encode the timing of when trades have to settle and what best effort you have to make. Those are hopeful by the end of the year. If anybody’s seen the list of SEC rule changes, it’s quite a long list.  But fingers crossed, this one’s coming. So those are pretty much some of the updates that have been put out there. People have also mentioned T + 0. I can go into a lot of nuances as to why that’s not on the table right now, but you should know, it’s off the radar. That doesn’t mean you shouldn’t be thinking about it as you make decisions today for building blocks for the future. But that’s really not in focus. Other than that, the common theme for T + 1 is no party left behind. The fact is you don’t have a choice. We all have to go. If you’re not going to be able to settle your trades on T + 1, you’re going to be on the bad boy list. And it’s probably not going to go that smoothly for you. But it’s a big deal. Behavioral changes as well as the technology compression event and it’s going to take all hands coming on board. So the focus is you’re not late if you’re starting now.  You’re going to be late if you don’t start now.

Frank Childress:  Good advice. So following up with that theme of now, what should firms be thinking about right now? What should they be actually doing right now?

Jeff Gearhart: From my perspective, and from a lot of the feedback and conversations I’ve heard, both at the events and through our engagements with a lot of broker dealers with a lot of software vendors and clearing brokers, you have to have a plan.  Think of it in this context, if we’re going to try and go to T + 1 in 2024, that means industry testing, systems testing. Everything will be in the beginning of 2024, end of 2023. Which means you’re really up 2023 to really execute your plan and get ready and get prepared, which puts your right back into 2022 or now, where you needed to be doing your planning and you needed to be getting prepared. So step one – have a plan. And that needs to be not a plan for the operations manager, that needs to be a corporate level plan. Think of a PMO type role if you will.

You need to set up governance; you need to set up a regular cadence of meetings. You need to set up communication. In my experience in different roles, communication is going to be key and assigning accountability. And you need to define the work streams. We already know what they are. Technology, operations, sales and trading, finance, compliance, risk.  Same people that make everything work every day, have to come on board to make this happen. So that’s number one, number two – self-assessment. Determine the impact analysis for your firm. I think that’s key. And we’re going to talk about that a little bit in terms of, what’s this mean to your firm? Are you ready or not? I think that’s something everybody should be doing. It’s not a bad exercise anyhow, but you, you really need to evaluate the trade life cycle.

You need to see how everything from onboarding and standing settlement instructions to corporate actions to how are you going to handle a no stock loan. Recall, think about it. Something’s out on loan and you need it back. You’re almost going to have to be able to do that on trade date and also think about how you’re going to make all these deadlines, these new timeframes on trade date. What’s it going to mean to your operations group? Are you going to be running two shifts? How are you going to extend the day? Of course, technology is key. As I mentioned, this is a technology compression event. When they went from T plus three to T plus two, there were a lot of technology gains in terms of figuring out better ways to do things.  That’s likely going to happen here as well, trying to reduce manual steps.

But you’re going to need to manage the resources because you’re not going to have as much room for error. And this is what I mentioned before on T + 0, you can lay some building blocks now for where you want to be, now’s the time to do it.  On technology – what’s really important is you only have really one budget season left. I mean, in all these, we all know how it works. You budget in the summer to the end of the year for the next year. Well, you’re in 2023 next year, and you have to be live in 2024. You kind of have to pull it together now.   There’s one other point I’d make on technology, resiliency, business recovery.  While your timeframes are going to get really short, so factor that in.  Just a few more things there, behavioral changes, same thing as when we went to T plus two.  You need to change the behavior of sales, trading clients, asset managers, operations folks, in terms of urgency on how you’re going to get this done.

Look at the full life cycle. See what information will be needed from whom.  I’ve been on trading desks. We’ve all seen it.  Allocations come in later in the day and sometimes they slide till tomorrow. Well that that’s not going to be feasible anymore. Clients when you onboard , diligence on standing settlement instructions, you need to get that done. People need to expect that when they’re setting up the account and to the extent it involves clients, you’re going to have to educate them. There’s going to have to be an outreach plan. It’s not like anybody has a choice, but it’s good to get people educated up front. Another category is vendor awareness and outreach. From my experience in this consulting role, when we deal with clearing brokers or broker dealers, managing software providers, vendor management’s not really a strong point. In fact, we see a lot of cases where it could be improved.

It’s not a time for passive acceptance or expecting them to be there.  Just like a lot of the other rules, you might be able to outsource it, but you’re still accountable. So you need to establish a plan with all key vendors, know what they’re doing, sit on their teams, get a regular cadence for status updates, participate in their testing.  Make sure you’re ready and make sure they have the ability to participate in industry testing. And then again, just like you need to be ready with your own technology for resiliency, make sure they’re ready from a resiliency effort. And then last, this sounds so easy. I’ve been there. I’ve sat in the seat. We’ve all sat in the seats. It’s hard to stay in the loop. It’s hard to stay current, but you’re going to really have to. And that’s, what’s key on this because you want to know upfront when things change and how to be prepared. So it’s going to be a strain on resources. And we can talk a little bit about that, but that’s where we’re getting some knowledgeable resources that can lend a hand, provide some guidance, or even just a little bit of perspective. And then what the rest of the industry’s doing is going to be key. Sorry about that, Frank. That was a long answer for an easy question. I apologize. <Laugh>

Frank Childress:  Oh, that’s what we need to dig into, the details. So that’s great. I mean, you alluded to a few things of self-assessment.  You referenced a day in the life or full life cycle. So if we dig into that a little bit deeper, how would you actually approach a preparedness review?

Jeff Gearhart:  From my perspective? And I’m going to ask Jose to join in here from his perspective in the different companies he’s been in. I think the easiest approach, the best approach is to take a day in the life approach of a trade life cycle and walk through, see where the friction points are, make sure you have the metrics to measure fails. Number of trades, get an idea. The timing of when the information comes in, see where your problem areas are going to be. See what steps are time dependent on others, it’s technology. Once your batch cycle run, it’s probably still going to be in a batch cycle. That’s not going away yet, but you need to make sure the timing works for the transfer of files, the receipt of the information. Are you sending information out to an OS to support security, master data, things like that. Anything you need to dig into the details. Jose, I don’t know if you want to chime in there a little bit on some of the issues that could happen in the current state assessment to determine the impact.

Jose Fernandez:  Yeah, certainly, thank you.  Really you touched on it.  This is really a technology compression event, but when you think about it, operational nature, it touches every single point or aspect within the trade life.  So if you begin with the client onboarding process, how quickly are you getting the information needed in order for you to establish that account to be able to trade? So from the client onboarding, trade execution, we talked about the trade affirmation confirmation process, which I think is going to be the one area as already noted, with some changes to those regulations there. and those rules.  Exception processing is another one. That’s one where again, you’re going to be able to monitor the activity on a real time basis and be able to take action on those, considering the constraints there on the timeline.

So the trade allocations, that’s one area that needs to be really considered because there are multiple ways in which you receive that information whether it’s through email, email groups.  You also have clients who have set up their own portals, which one would go into and obtain that information. So some standardization thing there, I would hope to be a focus.  But you start getting into things, as Jeff mentioned, real time data sources.  Being able to analyze that information.  Security’s financing, as you think about stock loans, repo, FX transactions, and obviously corporate actions and other types of operational events, those will all be impacted. So that is your life cycle, right. Of a transaction from beginning to end. And it all gets impacted to some extent or another

Jeff Gearhart:  Jose, when we would go in to do a current state assessment, we’re actually going to evaluate the firm’s current processes to really determine the impact. So the way I look at it, we’re not just talking high level topics. We’re actually interviewing the team. We’re seeing what the technology is. We’re seeing how things connect, who knows what’s going on before and after. So it’s an in depth, in the weeds type assessment. And I think can add value in terms of adapting to a T + 1 environment. But I guess I want to emphasize one point on a current state assessment. If you don’t have the metrics or the good management practices today, to know where your friction points are, where your problem points are, who your difficult customers are, who the traders are, who are a little bit behind, if you have trade reporting issues, anything like that, you need to have those metrics because it’s going to become key. Anything that happens today that’s a friction point for you is just going to be a more significant point in a T + 1 environment. So know what the problem points are, know how you’re addressing them, know how to measure, where you stand and know when things are going wrong from a consulting viewpoint. And some of the firms we go into, I’d say, that’s one of the key things that go wrong and that they don’t actually have the good metrics to manage their business.

Frank Childress: Jeff and Jose, as we consider the calendar, you, you referenced technology a few times. What might be some of the considerations you think about with respect to third party vendors, your clearing firms, any other folks that you depend on in your day to day securities processing?  Things that you might want to think about as you manage that calendar?

Jose Fernandez:  Thanks, Frank. So really what we want to bring to light and really recommend for all firms out there, is to really take a look at your vendors.  Take a look at your clearing model, evaluate that.  And if there are changes that need to be made, get on that almost immediately.  I mean, the timeline is a short timeline is referenced earlier, you know.  2024 will be here before you know it, and some of these changes are not things that can be done overnight.  They’re a little more involved. And so evaluating your current systems, your current vendors, your clearing model right now, and being prepared early on to make any changes necessary, I think would be something we’d highly recommend.

Frank Childress:  Great. Thanks Jose.  Jeff, Jose, any final thoughts to consider as we embark on this?

Jeff Gearhart:  Well, Frank, from my perspective, I’m trying to think if there’s one key point that’s relevant, or that people should jump on.  But I think the fact is, it’s the volume of work here that has to be dealt with and the number of work streams. So it’s a challenge and there’s time.  My suggestion or thought is tapping into the right pool of expertise, subject matter experts, people that have been there before that can either help guide you through the process, provide an independent assessment or, as you get into the work, can free up your resources so they can work on it. There’s lots of ways to look at this that in terms of performing a current state assessment, doing the impact analysis becomes pretty key and then remediating the efforts. So, and then of course, the technology is a strong lift. But I think everybody knows that the most important thing is, now is the time to be doing this assessment to be doing the evaluation to laying our plans.

Frank Childress:  That’s great. And so, Jeff and Jose, thanks a lot. This has really been informative as our second podcast with respect to T + 1. I suspect we will continue these as industry developments continue. And as we get more information out of DTC and the SEC with respect to anything else.  I think we’ll all be looking for that playbook that you referenced as a helper going forward.  But at a minimum, it sounds like folks need to have their team in place. As you mentioned, highlighting have a plan and obviously technology operations vendors are all going to play a key role in a successful conversion to T + 1.

Jeff Gearhart:  Folks should not hesitate to reach out to us, just for a conversation on the topic. We’re pretty actively involved with a lot of the industry vendors, clearing partners and whatnot, and we’re staying in touch with key industry participants, the working groups. So if anybody has any questions or just wants to think something through, they shouldn’t hesitate to reach out to any of us.

Libby Hall:  Thanks, everyone for listening.  If you’d like to learn more about our experts and how Oyster can help your firm, visit our website at oysterllc.com.  And if you like what you heard today, follow us on whatever platform you listen to and give us a review.  Reviews make it easier for people to find us.

About The Podcast Speakers
Photo of Jeff Gearhart

Jeffrey Gearhart

Jeffrey Gearhart is an intuitive, analytical leader with over 30 years of experience in banking and capital markets businesses. Prior to joining Oyster, he held senior leadership roles with The Bank of New York Mellon, including business line COO, CFO, business development and relationship management.

Photo of Frank Childress

Frank Childress

Frank Childress is an engaged and respected Financial Services professional with over 35 years of industry experience. Frank has extensive expertise in Equity and Fixed Income Trading, Equity Market Structure, and Capital Markets Products for retail distribution.

Photo of Jose Fernandez

Jose Fernandez

Jose’s executive experience includes responsibility for the overall coordination and ongoing improvement of operational support functions and processes including Client Onboarding, Operational, Counterparty and Market Risk, Regulatory Compliance, Audit, Profit/Loss management and reporting, Vendor Management and Technology.

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