18 September 2014

Half of market participants not preparing for T+2 - Omgeo

31 October 2012  |  7417 views  |  1 Dealing Room

Market participants are not prepared for shorter settlement cycles, despite being strongly in favour of a move to T+2, according to a study from Omgeo.

The survey of 590 custodian banks, broker-dealers, fund managers and other financial institutions in Asia-Pacific, North America and Europe, found that half are making no preparations for shorter settlement cycles. This is despite the fact that 66% believe that financial penalties should be incurred for late settlement.

Awareness of the case for shortening the settlement timetable is the highest in Europe - at 59% - which is poised to move to T+2 by mid-2014 ahead of the implementation of Target2Securities. In Asia-Pacific, where a number of markets already settle on T+2, awareness of the case is at 22%.

However, in North America it stands at just six per cent, with the topic only starting to re-emerge following a recent study by the Boston Consulting Group that estimates that it would take three years to move the US securities industry to T+2.

That research, carried out for the DTCC and Sifma, found that a move to T+2 would cost the industry $550 million but result in annual operational cost savings of $170 million while the reduction in risk exposure on unguaranteed buy-side trades would be up to $200 million.

In terms of achieving T+2 settlement, the Omgeo survey found that 60% of respondents considered the timely receipt of trade details from counterparties the most crucial determinant of success.

Tony Freeman, executive director, industry relations, Omgeo, says: "There is a global shift towards shorter settlement cycles to reduce exposure to counterparties and market prices and to achieve liquidity, capital and collateral savings. The lack of meaningful preparation is concerning as we gain increasing momentum towards shorter settlement cycles globally.

Freeman spoke to Finextra at Sibos about the move towards shorter settlement cycles:

Comments: (1)

A Finextra member | 01 November, 2012, 12:45

I have to agree that FS firms are really slow to move towards T+2 with buyside firms and retail stockbrokers almost totally unaware or with their heads in their hands or over their eyes. Matching is key and this has to be trade date and no later.At an equal point of importance is standard and accurate settlement instructions. Sadly the industry as a whole are not great at either despite OMGEO supplying very good solutions there is still far too much that goes through outside of any matching or SSI standards. SWIFT offers good alternatives and i suspect that more and more vendors will enter this space. Question is will it be before T+2 or afterwards as the industry moves into another settlment crisis?

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