T+1 settlement and post-trade allocation efficiency
Bloomberg Professional Services
Traditionally, financial markets have focused on front-office operations. However, optimization of post-trade processes is increasingly recognized as crucial for smooth market operation.Â
The shift of US, Canada & Mexico markets to a T+1 settlement cycle represents the industry’s move toward greater efficiency and risk reduction. Thus, market participants must stay informed and adapt their practices accordingly.
The move to T+1 is global
At the end of May, the T+1 settlement cycle, which speeds up the settlement of securities from two days to one, went live in the US, Canada and Mexico. T+1 is expected to cause ripples across the world for both the buy-and sell-side market players. While US firms grapple with a reduction in their post trade settlement time, companies across Europe and Asia face a significantly greater reduction due to time zone constraints, forcing firms to look at how they staff their operations teams to meet their trade date 9:00PM affirmations.
Other markets are very closely watching the go-live of T+1 in the US, Canada and Mexico with the expectation of transitioning to T+1 themselves in the future. However, the fragmentation of European and Asian markets pose further challenges for market participants.
Challenges and opportunities
While there is apprehension around a shortened settlement cycle among market participants, the move to T+1 should be viewed as an opportunity to automate and modernize workflows. A number of firms remain reliant on manual processes that involve multiple teams and platforms, with inefficiencies of communication. Streamlining operations through automation, centralization and standardization can help reduce manual errors, improve coordination between teams and lead to cost savings.
Operational efficiency of sell-side firms can play a vital role in the ability to maintain successful trading relationships with their counterparties. Especially, given that buy-side firms are looking to achieve greater Straight-through Processing (STP) and will be looking at the allocation processing efficiency of their Brokers/Dealers as part of their trading decisions.
Increasingly, processes for establishing and maintaining settlement instructions and counterparty accounts will play a key role in the efficiency of a sell-side brokers’ ability to meet the T+1 objectives.
To that end, Bloomberg’s TOMS Sell-Side Open Counterparty (CPTY) enables firms to streamline the account opening process and automate allocations processing. Clients can establish direct connectivity with their internal ‘golden source’ counterparty database, allowing them to save valuable time while freeing up resources previously tasked with manual actions.
Technology matters
In-depth reviews of technology infrastructure are needed to identify gaps and inefficiencies across the trade lifecycle. This means taking a closer look at post execution operations, settlement, and reconciliation. While there is the potential upfront financial cost, T+1 could lead firms to drive down total cost per trade in the long run should the right technology and operational processes be put in place.
Bloomberg’s TOMS Sell-Side Middle Office (SSMO) offering provides firms with a single interface for managing allocation processes and exceptions. Through SSMO, firms can support their counterparties across any allocation medium and keep up with the latest industry trends. Whether processing allocations through Central Trade Matching (CTM), FIX Allocations & Confirmations, Match-to-Instruct (M2i), Instructing Party Matching Group (IPMG), direct venue connectivity for allocations, or much more, Bloomberg TOMS is well-positioned to support sell-side firms in their post trade needs.
Decisions for the future
Sell-Side firms have a magnitude of challenges to overcome in readiness for T+1. Partnering with the right post trade technology provider can prove to be a driving factor for a successful implementation of US/Canada/Mexico T+1 – while preparing for the future. The ever-present question of to build in-house or partner with vendors for post trade will be as acute as ever now. Relying on expertise and collective experience of Bloomberg’s Sell-Side offering can enhance firms’ operational efficiency and help reduce costs.