Firms need to upgrade middle- and back-office systems needed ahead of T+1

The research estimated that 81% of brokers and banks active within these markets are either using manual processes or home-grown systems to support their post-trade processes.

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Overall, changes will have to be made to numerous internal systems as sell-side firms have an average of 9.1 core processing systems.

These range from post trade systems covering securities lending, cash management and collateral management to wider operational flow, such front office systems, exchange traded funds (ETFs and mutual fund processing, corporate actions, reference data, and trade confirmation systems.  

The paper argued that by investing in such processes, firms can expect increased confirmation matching rates, faster exception resolution and a reduction in settlement failures, with the ability to process higher volumes of electronic order flow.  

The paper also noted that the US Securities and Exchange Commission believes T+1 can be completed t much quicker than the previous move to T+2, which took three years although many firms may refute this.

“As the move to T+1 gathers momentum, firms will find that failing to adapt to industry-driven market structure changes will incur significant risk both operationally and competitively in a challenging market,” said Brian Collings, CEO of Torstone Technology.

He added, “Manual processes and batch processing are simply not compatible with the shift to shorter settlement cycles – firms need to update and automate their middle- and back-office systems or face substantial operational risk.” 

Virginie O’Shea, CEO and founder of Firebrand Research, notes,“While firms absolutely need to prepare for the move to T+1, greater automation and digitisation has been topping client agendas since the pandemic and the subsequent pressure on resources.

While T+1 is a clear impetus for firms to address inefficiencies, the benefit further automation will bring to competitiveness and client service cannot be overstated.” 

Daniel Carpenter, CEO of Meritsoft, a Cognizant company, also commented that this was a a timely reminder of the scale of the challenge ahead for many financial institutions. With post-trade typically an area of under-investment to date, the allocation, matching and settling of trades using current legacy technology over a compressed timeframe will put additional pressure on banks’ operational processes.

He adds, “Being able to settle T+1 by 2024 remains a daunting prospect for many firms. To manage settlement activities T+1, the ability to digitize and aggregate large amounts of trade data from disparate systems and to automate end-to-end settlement processes will be crucial.

Just as the introduction of the CSDR penalty regime in Europe focused investment on updating systems and processes, so T+1 brings a renewed focus on the improvements required to achieve next day settlement.”

©Markets Media Europe 2022

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