Half of market participants not preparing for T+2 - Omgeo
31 October 2012 | 8617 views | 1
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: