Is T+1 an opportunity for innovation in the industry or more of an operational obstacle?
It can probably be looked at as potentially both. Most organisations would say that to some degree or other they’re ready to settle T+1 today. If you don’t invest, you’ll probably get there just with some operational tweaks and some small changes, but that would be a bit disappointing as a market if that’s as far as we go.
The way our markets function and are structured has been a buildup of process and evolution over 20 or 30 years. But if you were to start from scratch now, would you build the processes and the end-to-end connectivity in the way that we have it today? Possibly not, because technology now would allow you to do it differently.
We can use T +1 as an opportunity to really invest in new technologies, whether it’s artificial intelligence, APIs or data and analytical tools. If we don’t do it now, when will we do it? What would be the catalyst?
How is BNP Paribas preparing for a shift to T+1 settlement in Europe?
We have a lot of experience in markets that are already on shorter settlement cycles than the European norm, so part of what we are doing is looking at how those markets are functioning on an ongoing basis and looking back at how we managed the North American migration and learning from that as much as we can. It’s safe to say that at the very base level, we can settle transactions that we receive today if we need to on a T+1 or even T+0 basis.
But there’s a need to go further than that and help our clients and our clients’ customers to really understand what the impact for them is and what areas they need to focus on. We’re hosting a lot of forums, working groups, papers etc to really make sure they’ve understood the areas that impact them as well as what they need to do.
There is a unique point around day one of T+1, which is that the first day of settlement under T+1 is the last day of settlement under T+2. It’s a dual settlement day and that impacts on liquidity and financing requirements. So again, it’s about making sure you’ve got the right eyes around that first day of settlement.
Read more – ‘The clock is ticking’ remind experts as the 24 month countdown to T+1 in Europe looms
Alongside the move to T +1, there’s also a lot of focus on evolving markets to incorporate digital issuances and tokenisation. Do you think these two priorities are complementary or competing?
If you take it at the highest level, you’ve got traditional markets and new markets, and therefore there’s a competitive element there, particularly with digital issuances. If you take that a bit further, a lot of tokenisation is focusing on creating new solutions around assets from traditional markets.
A lot of the focus has been on tokenising traditional assets so that they can be used as collateral in a more 24/7 cycle and allow coverage of financing needs in a more global framework. The other part is again; digital markets and new markets have an ability to perhaps integrate new technology quicker and rework how the market framework simpler than what traditional markets might be able to do.
It’s not going to be a rapid shift from traditional markets to digital markets. So therefore, with T+1 we can learn from some of the values that are being created in these new markets.
Is T+1 the end game?
If we are going to T+0, that’s going to be a fundamental shift in the way that markets work. There’s a potential to use the step towards T+1 as the reason to change your operating model and then scale it back a little bit so that it works for T+0. There’s been enough commentary around the market that suggests that T+1 isn’t the end game, but let’s be careful before deciding what the end game is, to ensure that we’re doing it with the interests of investors and issuers in mind.
At the end of the day, for an investor, the time frame of settlement is the timeframe that makes it easier for them. For some parties, that might be T+0. For others, it might not be. Once we get through T +1, we need to have a market conversation about what should be the end game. And maybe the end game should be a choice, not a mandate.