Firms unprepared for T+2 settlement

Half of market participants are not preparing for shorter settlement cycles, despite widespread support for a T+2 cycle, according to new research.

Half of market participants are not preparing for shorter settlement cycles, despite widespread support for a T+2 cycle, according to new research.

US firms are significantly behind their European and Asian counterparts, with only 6% aware that settlement cycles could be reduced from three to two days.

The survey, by post-trade processing firm Omgeo, heard from 590 custodian banks, broker-dealers, fund managers and other financial institutions in Asia-Pacific, North America and Europe to gauge readiness for a change in the settlement cycle.

T+2 settlement implementation in Europe is likely to take place in mid-2014, and European firms had the highest rate of awareness regarding the shortening of the settlement cycle, with 59%. In Asia, where several markets have already moved to T+2 settlement, awareness was 22%.

Moreover, 66% of firms surveyed believed penalties should be incurred for late settlement, which suggests a rush to implement updated processes and technology to meet swifter settlement times could occur over coming years. And, only 20% of firms have informed clients of the possible move to T+2 settlement.

Tony Freeman, executive director of industry relations at Omgeo, said the results showed a clear gap in readiness for quicker settlement processes. 

“The lack of meaningful preparation is concerning as we gain increasing momentum towards shorter settlement cycles globally,” Freeman said, adding that market participants clearly appreciated that their own readiness to settle trades on T+2 was only as good as that of their counterparties.

There is a global shift towards shorter settlement cycles to reduce exposure to counterparties and market prices and to achieve liquidity, capital and collateral savings,” said Freeman.

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