Impact of T+1 Settlement on Global Securities Market Participants
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Impact of T+1 Settlement on Market Participants
A recent survey conducted by Citigroup highlights the significant challenges faced by market participants following the transition to a shorter settlement cycle for U.S. securities transactions. This shift, which took place earlier this year, has had a notably greater impact than many anticipated, particularly affecting institutions in Europe.
Understanding T+1 Settlement Transition
In May, the United States implemented a quicker settlement cycle, moving from a two-day trading cycle to one that requires securities transactions to settle by the next business day, known as T+1. This rapid transition posed new logistical hurdles and funding concerns, provoking a variety of reactions from firms engaged in buying and selling securities.
Survey Insights
The Citigroup survey, which gathered responses from nearly 500 financial institutions, revealed that 44% of firms on both buy and sell sides reported that the transition had a more substantial effect than they expected. The shift was cited as having widespread implications across multiple facets of operations, from trading efficiencies to human resource management.
European Market Challenges
Among the various markets affected, Europe experienced the most significant consequences. The survey indicated that settlement and funding issues arose primarily due to the time zone differences that complicate currency trades—which are often used to fund U.S. securities transactions. These challenges reflect the interconnectedness of global finance and how U.S. policy alterations resonate beyond its borders.
Securities Lending and Funding Implications
Additionally, the survey revealed that securities lending faced a notable uptick, with the percentage of organizations reporting a significant impact rising from 33% to 50%. Both the sell-side and buy-side firms acknowledged changes to their funding and margin requirements, which marked a shift in how securities were handled and serviced post-T+1.
Staffing Adjustments in the Industry
Personnel levels at banks and brokerage firms have also been influenced, with 52% reporting adjustments to their staffing in response to the new system. This situation suggests a reliance on human resources over automation, potentially making these firms more vulnerable to the volume of manual processes that arose as a byproduct of the transition.
Citi emphasized that understanding the complete impact of the accelerated settlement will require more time. As stakeholders adapt to these changes, they will provide additional insights that could shape future practices and policies in the industry.
Frequently Asked Questions
What is T+1 settlement?
T+1 settlement refers to the requirement that securities transactions settle one business day after the trade date, which reduces the time from the traditional T+2 model.
Who conducted the survey on the impact of T+1?
The survey was conducted by Citigroup, polling nearly 500 institutions to assess the effects of the faster settlement cycle.
Which market was most affected by the T+1 transition?
European markets reported the most significant impact due to challenges with time zones and funding processes related to U.S. securities transactions.
What changes occurred in securities lending post-T+1?
Securities lending saw a significant increase in reported impacts, with organizations noting a rise from 33% to 50% in the challenges faced.
How did staffing levels adjust due to T+1?
Over half of the banks and brokers surveyed indicated that their staffing levels were affected, leading to challenges in managing manual processes that emerged from the transition.
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