Discovering the T+1 Settlement's Impact on Capital Markets

Significant improvements have been made to the securities settlement operating model over the years. Still, transaction and securities processing inefficiencies remain a recurrent challenge, instructing a swift resolution. We think 24 hours settlement cycle findings are an interesting read for every capital market executive, providing insight into several vital aspects of the transition. Let’s dive deep into the impact of the T+1 Settlement.

Accelerating the cycle of securities settlement 

Accelerating the cycle of securities settlement 
The industry is preparing to move from the current two-day (T+2) settlement cycle to a one-day (T+1) settlement cycle. The Securities and Exchange Commission (SEC) has proposed May 28, 2024, as the compliance date for the T+1 transition for the U.S. securities market. Following pressure from several market players, European Union is evaluating the move to adopt the T+1 settlement cycle, while Canada has announced its decision to follow suit quite soon. India is already phasing in T+1 for publicly traded equities, intending to cover all stocks by Q1 2023. Latam region is also deepening its roots in the capital market.
The transition to the T+2 settlement was considered as “Pulling the securities settlement strap” for many operational processes; however, the T+1 settlement is expected to be the next logical leap to detect discrepancies, track securities transactions, and reduce settlement failures.

Get a crystal view of T+1 settlement cycle

The implementation of T+1 settlement requires coordination and collaboration across market participants, including custodians, clearinghouses, and settlement agents. 
Unique Transaction Identifier (UTI)- an ISO standard plays an important role in enabling T+1 settlement by providing a standardized method of tracking and identifying transactions. It is a unique alpha-numeric (52 characters) assigned to a security trade. The first 20 characters (18! c and 2! n: fixed length) is the Legal Entity Identifier (LEI) specific to the generating entity. While the remaining 32 characters (32c: maximum length) are assigned to the transaction by the generating entity.
This UTI enhances transparency for all participants across both legs of the settlement framework by swiftly identifying and resolving all kinds of bottlenecks. This eventually minimizes operational risks and costs developing from potential settlement fails.
Get a crystal view of T+1 settlement cycle
By leveraging UTI, Swift Securities View allows parties to track securities transactions from an end-to-end transaction cycle. This transparency reduces operational risk and costs, improves straight-through processing, and boosts settlement efficiency. As a pioneer in integrating Swift’s Securities View, ECS will grant access to service data and functionalities for settlement messages and their underlying messages, such as discrepancies between buy and sell instructions or if a missing instruction about the counterparty. Access Swift Securities View through channels like GUI or API / MT by integrating it into your back-office systems.

Key Considerations and T+1 Settlement Drivers

Resilient system and improved trade processing programs to minimize the impacts of system outages

Standardizing reference data, strict policies, and procedures to update SSI reference data promptly before settlement. This includes contacting clients before settlement and updating internal systems prior to trade execution and settlement.

Several testing iterations is required for participants' internal systems, integrated vendor products, DTCC, exchanges, and other market players.

The process of rectifying trades, correcting errors, or resolving exceptions during the trade settlement cycle must be automated.

Adoption of technology (e.g., CTM/M2i) and messaging protocols to automate the trade communication.

Coordination and collaboration across market participants, including custodians, clearinghouses, and settlement agents.

How ECS can help to focus on efficiency

ECS has proactively anticipated the shift to the T+1 trade settlement program for the last few years. Being Gold certified in securities settlement, our skilled engineers can work to build a practical framework for our clients with the engagement of UTI for reference and APIs for communication. We usually thoroughly assess current-state impact to determine potential enhancements or improvements in processes, data architecture, technology, and people to accelerate the settlement cycle.
After all, shorter settlement cycles describe less time given to modify or correct any issue exceptions that arise. Leverage our comprehensive range of IMS products and services to design an effective and comprehensive game plan, determine impacted areas, innovate processes, and provide technology solutions. ECS welcomes you to meet deadlines and execute the T+1 settlement program efficaciously.
Watch the full discussion with Swift and our session ‘T+1 settlement and the urgent quest for settlement efficiency,’ available on demand. More info here.