Embracing the Shift to T+1: Strategies for Success in the New Settlement Landscape

Introduction: The financial industry stands on the brink of a pivotal transformation, with the U.S. Securities and Exchange Commission (SEC) mandating the move to T+1 settlement for transactions in U.S. cash equities, corporate debt, and unit investment trusts by May 28, 2024. This transition, reducing the settlement cycle by 24 hours, presents both significant challenges and opportunities for firms globally. At Loffa Interactive Group, we recognize the importance of this shift and its impact on the trade lifecycle. Drawing insights from the DTCC’s “Accelerating to T+1” series, we explore strategies to navigate this transition effectively.

A Strategic Priority for Firms:

The move to T+1 necessitates a comprehensive review and adjustment of operational and technical procedures across the financial industry. Unlike the previous transition to T+2, the shift to T+1 demands not only resource augmentation but also significant technological and behavioral changes. Emphasizing Straight-Through Processing (STP) becomes crucial, as firms must update legacy systems and alter longstanding processes to meet the condensed timelines for allocation, confirmation, and affirmation of transactions.

Global Implications and Solutions: The T+1 settlement cycle particularly affects firms in Europe and APAC due to time zone differences, challenging their ability to resolve exceptions within the shortened timeframe. Adopting a “follow the sun model” could mitigate these challenges, ensuring continuous, seamless processing across global markets. Furthermore, the revised recordkeeping requirements underscore the importance of buy-side participation in maintaining comprehensive, timely records of trade confirmations and affirmations.

Operational Excellence through Automation: To align with the accelerated settlement cycle, leveraging automation in post-trade processes is paramount. DTCC’s Integration of powerful analytics tools and consulting services offers firms a pathway to assess readiness, enhance control processes, and optimize trade operations. Automation, particularly through DTCC’s CTM’s Match to Instruct (M2i) workflow, enables near-100% same-day affirmation rates, illustrating the critical role of technology in achieving T+1 settlement efficiency.

Preparing for Implementation: DTCC’s extensive testing schedule, utilizing an Agile approach, allows firms to iteratively test and refine their systems in preparation for the T+1 transition. This proactive engagement in testing scenarios, from implementation weekend to holiday testing, is vital for identifying and addressing potential issues well ahead of the May 2024 deadline.

The Path Forward: As the industry gears up for the T+1 settlement cycle, it’s clear that success hinges on embracing technological advancements and fostering collaborative efforts across the ecosystem. At Loffa Interactive Group, we are committed to supporting our clients through this transition, leveraging our expertise in financial technologies and operational settlement to ensure a smooth and efficient shift to T+1. By prioritizing automation, enhancing operational processes, and engaging with a known secure vendor like Loffa in thorough testing and preparation, firms can navigate the transition confidently, ensuring stability and resilience in the new settlement landscape.

Conclusion: The transition to T+1 settlement marks a significant milestone in the evolution of financial markets, driving efficiency, reducing risk, and enhancing liquidity. As we approach this new era, Loffa Interactive Group remains dedicated to empowering our clients with the insights, tools, and strategies needed to thrive. By embracing change, prioritizing technological innovation, and fostering industry collaboration, we can collectively ensure a successful and seamless move to T+1.