The British perspective on T+1 – The international and domestic challenges ahead

The 28 May 2024 date for moving from trade date plus two days (T+2) settlement to T+1 settlement is creating significant concerns for UK market participants. In a panel discussion hosted by Torstone Technology and Firebrand Research, stakeholders spanning the sell-side, buy-side, and service provider market participants agreed on a fundamental point—faster settlement and differences between markets could create several unintended consequences.

The ultimate business case for the move is still valid. Over time, T+1 will likely improve market efficiency and streamline post-trade processes with greater automation and digital transformation.

However, it may also entail short-term pain, particularly in the UK.

From the British perspective, market stakeholders anticipate four domestic sources of concern:

● Operational and technological hurdles: Participants agreed that post-trade securities operations would need to be as efficient and automated as possible in a world with shortened settlement cycles. Major concerns include the middle-office confirmation and allocation crunch, asset servicing changes, and disruptions in securities lending flows.

● Global inconsistency and complications: With the move to T+1 in North America,
firms outside the region face pressures to coordinate across their global operations. As participants noted, some US firms have already made moves to accommodate time zone challenges. However mid-tier and smaller internationally-focused firms are concerned about losing business if they cannot quickly accommodate the changes.

● Buy-side participation: Participants observed that the buy-side engagement with and readiness for the T+1 move is vital. Many on the buy side still see the settlement cycle as a problem for their brokers and custodians to solve. However, the knock-on effects of greater inefficiency will ultimately erode the buy-side’s ability to respond to market conditions and satisfy end investors.

● Cost: The cost of implementing the structural, operational, and technological changes required for a T+1 settlement cycle was a key concern among market participants. Sell-side firms may face uncomfortable choices between passing on the costs to buy-side clients and absorbing those direct and indirect costs.

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