Provided by Katie O’Connor, S&P Global
In the dynamic world of finance, the rapid and accurate processing of securities transactions is essential for maintaining the integrity and efficiency of global markets. As technology continues to advance, the landscape of securities processing is undergoing significant transformation, particularly in the realm of post-trade transformation. Not least of these is the shortening of the settlement cycle, and with the countdown for T+1 in the US, Canada and Mexico in May 2024, the world is watching and considering the move in their markets.
Of course, much has been said about the move from T+2 to T+1. The move will certainly reduce risk, thereby enhancing market stability and market liquidity, all while lowering capital requirements. This allows market participants to deploy capital more efficiently, leading to cost savings and improved returns on investment. However, any improvements from a shorter cycle require thoughtful planning between all market players to ensure a successful and smooth transition.
Additionally, T+1 settlement streamlines post-trade processing workflows, reducing the operational burden on market participants and infrastructure providers. This enables participants to allocate resources more effectively and focus on value-added activities such as portfolio management and client servicing.
The role of technology in market enhancements cannot be overstated. The implementation of straight-through automation systems is set to significantly reduce risk and facilitate any transitions, thereby streamlining post-trade processing workflows and lightening the operational burden on market participants and infrastructure providers. This, in turn, enables participants to allocate resources more effectively and concentrate on value-added activities such as client servicing, thereby enhancing the overall efficiency and reliability of the market.
One of the key aspects of the transition to T+1 settlement is the opportunity to leverage APIs. By automating data capture, validation, and transmission, Straight-Through Processing (STP) minimizes processing delays and reduces operational risks. This not only enhances data accuracy but also ensures timely regulatory reporting, thereby fortifying compliance with market regulations. The strategic use of APIs can empower market participants to access real-time market data, execute trades, process corporate actions, and monitor portfolio positions, thereby enhancing transparency and efficiency in securities processing.
Despite its potential benefits, the transition to T+1 settlement poses several implementation challenges. Market participants may need to upgrade their trading systems, clearing and settlement platforms, and data infrastructure to support T+1 settlement. This entails significant investment in technology, an area much of the Australian market has already braced itself for, with the upcoming replacement of ASX’s Clearing House Electronic Subregister System (CHESS) with a new system.
For Australia, the market needs to consider any move to T+1 while considering how the CHESS replacement project will affect these timelines and budgets. The market also has to consider the effect that an out-of-sync settlement cycle against the global trend to T+1 could have on how Australia is seen by global investors. How would the market feel to be “left behind” in a T+1 world?
In conclusion, the transition to T+1 settlement represents a paradigm shift in the evolution of global financial markets. While the successful implementation of the T+1 settlement requires coordinated efforts among stakeholders and careful consideration of technological, regulatory, and operational challenges, the potential benefits make it a transformative development for the global financial ecosystem.
At S&P Global, we continue to work with our clients and partners in Australia and globally to ensure that all our solutions are ready for the inevitable shift to a shorter cycle. We are working with clients across many markets, making the change, and are excited to bring those technology advances and learnings to new markets and customers.
For more information on our T+1 adoption, please see: https://www.spglobal.com/marketintelligence/en/mi/products/t1-settlement-solutions.html
