Moving custodians and buy side firms to T+1 – key considerations from ISITC 2023

The location: ISITC’s 29th Annual Securities Operations Summit in Boston, and on stage: Barnaby Nelson from research and benchmarking organisation ValueExchange and John Abel, Executive Director of Equity Clearance and Settlement at DTCC (The Depository Trust & Clearing Corporation).

In ‘Accelerating to T+1’, they noted how manual processes are the biggest challenge in the journey towards T+1 settlements.  Not only because there are so many of them, but because each needs individual review, to establish what the current steps are and how they can be optimised.

Interesting to note also, the results of a survey conducted by ValueExchange on behalf of ISITC which found that Tier 1 companies may be less impacted by T+1 in terms of cost of transition and digitalisation. 

Rather, the effects will be most sharply felt by Tier 2 and 3 custodians and buy sides.  The key areas of impact?  Not unexpectedly, the survey found these to be settlements and fails management.  There’s a knock-on effect here, too.  Namely increased risk caused not only by the number of fails to be managed but also as a result of these impending, faster workflow requirements.

From our experience, given that financial services is such an inter-connected industry – and as there are so many steps to the settlement chain – even if Tier 1s are prepared, they are likely to be dealing with these less-prepared Tier 2 and 3 firms who will add inertia to the settlement process.

Put simply, you are as only strong as your weakest link.  So the Tier 1s should have a strong incentive to find a solution that ‘raises all boats’ in preparation for T+1.

What were the top five hurdles to executing T+1 found to be?  These were highlighted as:

1. Information – Lack of clarity on rules and implementation dates
2. Resource – competing resources/securing project resource
3. Priorities – competing regulatory projects
4. Change management – and the availability of people to do so
5. Systems – and legacy technology dependencies

The panel highlighted that more than 40% of the industry is not ready for T+1 in US, with the number jumping to more than 63% in the UK.  So this is very much a ‘here and now’ for which solutions are that already available in the market and easy to deploy need to be considered.  And as Canada gears up to work to the same deadline as in the USA, we heard that authorities there have highlighted the need to move away from email and telephone towards more modern and interoperable communications platforms.

The key action items for the audience?  Work together and collaborate with vendors.