T+1 Global Impacts Paper published
There are clear benefits to securities markets of reducing the period between trade date and settlement date including reductions in settlement, counterparty credit and market risks, as well as an overall gain in processing efficiency as market participants are forced to automate all aspects of post-trade processing to continue to participate in the markets. These cumulative risk reduction benefits can be characterized as reducing the overall systemic risk of securities trading. However, there are also obstacles that must be addressed, both domestically, and very importantly, on an international basis, focused on cross-border trades into markets moving to T+1 settlement.
In this paper, ISSA’s T+1 Global Impacts Working Group (WG) identifies six issues related to the move to T+1, one of which is unique to international investors, and five which are common to both domestic and international investors but are more significant for international investors to address.
Most importantly, ISSA’s T+1 Global Impacts WG makes four recommendations to the industry and regulatory bodies that are contemplating the possibility of accelerating their market’s settlement cycles to work together collaboratively on:
- Work with sell-side, buy-side, and securities services participants in key market centres around the world that represent significant cross-border transaction volume into their markets. Identify, evaluate, and make necessary changes to solve the challenges.
- Analyze the T+1 business case on a segmented level, assessing the impacts both domestically and internationally. The WG that the sponsors of T+1 explorations should work very early in the process with investment management firms of all sizes in market centres around the world that invest in their domestic market’s securities.
- Once the solutions and risk mitigants are agreed and scoped for implementation, the sponsors should include end-to-end testing of international transactions in their T+1 “Playbook”.
- Specifically related to foreign exchange (FX), ISSA recommends that domestic markets, with collaboration from investment managers in key geographic markets for cross-border transactions into their market, reach out to the foreign exchange/international payments industry to analyze the obstacles in both execution/liquidity and settlement, before finalizing plans to move to T+1 settlement.
We invite you to read about ISSA’s recommendations and the context for them in this this latest ISSA white paper