Firms need to aggressively rethink their trading and post-trade systems to handle these complexities at volume. To address the operational challenges of T+1, they will need to:
1. Audit current performance. Firms first need to know their current trade volumes, trade fail rates, allocations rates and affirmation/confirmation rates—and they need to capture these datapoints for each individual asset class. Late settlements and trade failures can only get worse under T+1, and a comprehensive audit of current performance will reveal the weakest links in the system.
2. Inventory vendor support systems, trading systems and hardware/software. Market participants need to understand which technology and operational systems will be most impacted by T+1. While the DTCC’s industry implementation playbook is a good starting point, many market participants will require rapid support from technology partners to assist in vetting the current technologies in light of future requirements.
3. Outline a technology-driven strategy. After determining what changes will be required to implement T+1 settlement, firms need to aggressively invest in new hardware and software to power their trading systems—and ensure that their third-party vendors and service bureau support companies are also prepared to achieve compliance. Ideally, these new technology solutions should lean toward automation rather than outsourcing.
Automation: T+1 Readiness Through Technology
Certainly, some firms will look to outsourcing, spreading the trading day workload across multiple geographies. While this strategy may allow firms to accommodate to a T+1 trading schedule without a drastic spike in late settlements and failed trades, it will be very expensive to solve all T+1 challenges simply by throwing people at the problem.
Rather than relying on the same systems while utilizing more people in more geographies, market participants should use T+1 as an occasion to significantly upgrade their technology capabilities. Most firms understand that their current practices are rife with inefficiencies. They can get away with inefficiencies because the T+2 settlement cycle allows numerous confusions, mistakes and exceptions to be ironed out manually on the second day of the trade cycle. Adopting automation will not only enable T+1 compliance but will also increase operational efficiency and resilience.
Most firms today operate with multiple processing systems tied to the individual product categories being traded, and those systems often rely on batch processing. Batch processing will not work for T+1 settlement. Systems will need to be processing continuously, in as close to real time as possible. Opportunities to manually repair trades, fix mistakes and resolve exceptions during the trade settlement cycle simply will not exist. An automation strategy must holistically address technology systems and data across all product categories, including reference data, standing instructions, corporate actions, securities lending, repo, collateral and liquidity management, trade funding and payments. Firms must adopt a bias toward retiring legacy systems, particularly batch systems, and truly transform the middle and back office into an integrated, automation-driven processing system.