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Dan Miller, IQ-EQ
Dan Miller, IQ-EQ

T+1 – now and what’s next 


With just over a week to go till T+1 settlement begins in North America, Canada and Mexico, time is of the essence, to make any last-minute adjustments.

Reflecting on the main issues that clients have been requesting help with the run up to the new settlement arrangements, Dan Miller, senior managing director of middle office outsourced services at investor-services firm, IQ-EQ in New York says:

“They have mostly been looking for a review of their trading architecture. They’ve also been asking how they will settle on T+1; and how their custodian or prime broker will make sure that they’re receiving their trade file on time. It’s always a question of structure and time.” 

The move to T+1 on one side of the Atlantic, raises questions about when and whether countries on the other side may follow suit. Charlie Geffen, chair of the UK’s Accelerated Settlement Taskforce said that the “UK cannot remain on T+2 indefinitely” in a letter to the Chancellor of the Exchequer in the taskforce report published in March this year. 

Considering the impact of the change on other financial centres, Miller anticipates that others will be following suit in the not-too-distant future: “I expect there to be a big push for moving to T+1 across Europe and the UK. If I had to make a guess, I would say it might take a year and a half to two years but maybe that will shorten.” 

Assessing the likely direction of travel, Miller takes the view that settlement time will reduce further: “I believe that eventually we will get to same-day settlement if not real-time settlement. Obviously digital assets that are more frequently traded by institutional investors have a separate settlement process from traditional financial instruments, so there is a precedent.

“If you were laying out a map for how to get from T+10 to T+1 30 years ago, you never would have envisaged that bitcoin would be the catalyst for jump starting a shortened settlement cycle. But I believe that it does have an effect on the industry, that there are these instruments being traded and settling in a totally separate way, and challenging how we think about settlement.”

Apart from preparing for major events such as a settlement-date change, ongoing maintenance can be helpful, says Miller: “I would encourage asset managers to do an annual health check – a review of their trading architecture, systems and vendors.

“It’s one thing to have to review trading architecture as a result of seismic industry events like tightening settlement cycles, but managers should be partnering with firms like ours to come in on an annual basis to identify any areas that might need improvement.”

He adds: “Sometimes there’s nothing to find, but there are some cases where managers bought a piece of software off the shelf 10,15 or 20 years ago.

By way of comparison, he concludes: “If you were driving the same car that you were driving 20 years ago, it would be in desperate need of an upgrade.” 

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