Most buy-siders have successfully transitioned to Europe’s T+2 settlement cycle despite widespread fears they would not be ready.
Tony Freeman, executive director of industry relations at post-trade specialist Omgeo, said initial indications suggest that the shift to T+2 was implemented much better than most industry commentators had expected, particularly among institutional investors.
A two-day settlement cycle for securities transactions was introduced on 6 October across most countries in Europe. Though it had been anticipated the scale of the change could prove problematic for various market conditions, the switchover passed with minimal disruption.
"T+2 implementation in Europe has no centralised project management and no one really knew how prepared the market was, but it seems over the past few weeks that it has gone much better than many people had anticipated," said Freeman.
"One we thing still don't know is whether additional resources are being committed by firms to ensure T+2 is implemented and what the effect will be if those are withdrawn. We'll be doing some analysis on our own numbers once the month is over to confirm this and see how T+2 has affected the number of failed trades as well."
It is expected that failed trades may have increased slightly following the move to T+2 and over long-term this may become problematic as the Central Securities Depository Regulation (CSDR) begins to be implemented.
CSDR rules are set to be published in December and will set out the level of fines firms will have to pay for having unacceptable numbers of failed trades, as well as setting the threshold at which fines are levied.
Freeman suggested that the current level of failed trades, which sits at around 3-4%, in unlikely to be accepted by regulators, meaning firms will need to work to improve their settlement process to reduce the failure rate.
However, he was surprised that the buy-side, which was widely expected to continue dealing on a T+3 basis as institutional investors are not directly impacted by CSDR, have mostly made the transition.
"The central securities depositories have said that the number of T+3 transactions is much lower than expected and this indicated that the buy-side has largely opted to start settling on a T+2 basis,” explained Freeman. “Those institutional investors that are still transacting on a T+3 basis are tending to do so in low volumes."