Data challenge for T plus 2

Any shortening of the settlement cycle is clearly going to tax operations to complete all the tasks necessary to settle only two days after trade date. I remember being head of operations when the move from account settlement went to ten day rolling then five day and then the three we have today.

Each change came with its own problems with technology innovation absolutely key to achieving T+ whatever and the change to T+2 will also rely heavily on technology. However, one aspect of settlement that is a consistent problem is the quality and the availability of the data necessary to settle the bargain.

Although today we have far better databases and a much greater capability of maintaining and communicating data the age old problem of data standards and consistency between the investing retail part of the market and the wholesale sell side of the market still prevails. This will need to be finally overcome if T+2 is to be possible, from an industry wide perspective.

There are third party suppliers that maintain settlement data and offer solutions to the industry problem but not all firms use this service. Is this the time when financial services firms especially in the investing side outsource their data management to a third party supplier? It has the attraction of being readymade even for trade date settlement and is already in use in pockets of market sectors.

However, if a third party outsourced solution is not utilised, firms will need to radically upgrade their current capability to manage and communicate data in an almost real-time scenario. For example settlement details will have to be communicated simultaneously with the bargain confirmation, so it can set the clearing and settlement wheels into motion and leave time to resolve any problems there might be. Delays will mean settlement failures and sanctions from regulators and possible massive increases in buying in activities.

It’s a problem with a solution, but are Settlement Managers aware enough and do they have the responsibility and budget to install the solution. Past experience shows that firms will react to this looming problem but tend to wait for sanctions before introducing the obvious solution.

T2S is hot on the tail of T+2 and it’s imperative that the firms get up to speed with the operational challenges that they will need to overcome. All this and more will be debated at the next Post Trade Forum.