Shorter settlement times a reality says Citi

Market participants around the world increasingly believe that shorter settlement cycles will become a reality, according to the second edition of Citi’s Securities Services Evolution whitepaper.

It found that 51% expect the prevailing settlement timeframe for equities to be T+1 by 2026 – up seven points from last year’s survey.

This sentiment is supported by several key markets moving towards a T+1 settlement cycle recently, including the US, Canada and India.

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“We are seeing a greater sense of momentum and purpose in all developments across the industry, in particular the determination to move to a T+1 settlement cycle,” said Okan Pekin, global head of securities services at Citi.

He added, “Delivering these changes will be no small feat but in due course offer the prospect of very substantial cost savings and efficiencies.”

Citi’s whitepaper includes quantitative and qualitative data gathered from 12 financial market infrastructures (FMIs) and almost 300 market participants from banks, broker-dealers, asset managers, custodians and institutional investors around the world.

The paper also found that 88% of respondents said their organisations are either actively participating in, or exploring use cases for digital assets, blockchain or distributed ledger technology while 54% believe DLT-based market infrastructure could cut post-trade processing costs by 10-30%.

In addition, 79% thin that atomic settlement is achievable in less than 10 years and 92% see the value and benefits of tokenisation to market liquidity, and variety of tradeable assets.

The study said FMIs and market participants continue to have opposed views on a number of topics.

For example, FMIs see risk reduction as a major benefit of reducing settlement cycles, which will in turn enable lower margin requirements and the release of capital. In contrast, only 17% of market participants survey felt the same way.

On the other hand, FMIs and market participants have become more closely aligned on their views regarding DLT’s role in facilitating a successful transition to T+1/T+0. FMIs believe that while DLT has a role to play, it is not an essential requirement. Only 21% of market participants (down vs 40% last year) think DLT will be core to a shortened settlement cycle.

 “The road to the shortening of the settlement cycle to T+1 is well under way,” said Javier Hernani, head securities services at SIX. “But as the industry starts preparations ahead of the 2024 deadline, current post trade technology must adapt smoothly.

There has been a significant amount of risk reduction that has already taken place over the last years – thanks in large part to technology improving post-trade processes from an efficiency point of view.”

Harry Scola, head of client delivery at Euroclear owned Taskize added, “When preparing for T+1, the clock is ticking for financial firms.  A key problem area is the amount of time and effort the settlement process takes – especially when using inefficient forms of communication like email or phone.

The continued use of these antiquated methods of communication and data sharing significantly increases the chances of firms failing to make T+1.”

©Markets Media Europe 2022

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