Years ago when the UK markets moved from T+5 to T+3 there was plenty of research about the benefits gained in risk reduction. There was doubt about the actual risk benefits because although there was obviously a reduction in possible default risk and market risks, there was a considerable increase in settlement failures and all the risks associated, not least being cost.

T+2 brings into question once again, is the reduction of risk of possible defaults, more beneficial than contractual settlement? What is good settlement?

As an experienced settlement man it was always ingrained in me that good settlement was settling on the contracted date, thus allowing proceeds to be allocated wherever the client wished and that failures would cause an increase in costs, risks and client dissatisfaction.

Today, settlement systems and in the UK, the excellent CREST system, have increased successful settlements to a very high level. At least in T+3 terms and this performance may have given confidence that shortening the settlement cycle to T+2 is possible. I am not sure the market, post trade clearing and settlement processes, can measure up to T+2 without considerable upgrading of systems and processes, and just as importantly the speed to which people have to work and respond to investors. The risk in moving to T+2, in my view, is still in balance with the increased risk if settlement failures increase.

T+2 is obviously a reaction to the credit crisis and subsequent industry problems, along with the global economic maelstrom we are all trying to swim away from. However, is it a change that has to be made now? T2S is heading our way and there is a necessity to standardise settlement in Europe but surely there are far more other important changes the industry should be making, than a settlement cycle that currently works well and that has doubtful benefits of changing. Will T2S be beneficial for the market and investors?