Back-office confirmation software has failed to keep pace with technological change, which could threaten the upcoming move to T+2 in Europe, according to a white paper from data and reporting service Trax.
With over twenty years since the introduction of the first vendor electronic trade confirmation (ETC) platform having passed, only a few months now remain before the official T+2 deadline of 6 October 2014.
The past two decades have seen considerable shifts in priorities for the securities services industry, and major advances in the way in which financial markets have operated – yet there has been no equivalent evolution in the technology utilised by back offices for trade confirmation, Trax argues.
Its head of post-trade, Chris Smith, comments: “Over the years, the way that financial markets operate has changed, yet back-office technology has not kept pace. With the advent of T+2 due to hit most of the European markets on 6th October 2014, it is time for the post-trade world to look again at their processes for confirming and agreeing trade details. The operational and balance sheet risk, as well as the associated impact on reputation, for failed trades mean that doing nothing to prepare for T+2 is not an option.”
Despite this urgency, the report argues that, in practice, it is very unlikely that firms will be able to make all the necessary adjustments in time for the October 6 deadline. It is suggested that the scale of change, contractual constraints, dependencies on clients and suppliers, and the need to focus change resources and technology development on meeting other pressing requirements will all raise complications.
However, as the white paper concludes, “firms that do implement change programs to consider the implementation of shortened settlement cycles in Europe will be best placed to meet the challenge. T+2 requires a community approach to be truly successfully implemented.”
With no single coordinating body overseeing the process, the migration to T+2 is unprecedented in scale. In light of the challenges facing market participants, Trax therefore urges a creative and collective approach by all involved to achieving what they expect to be a vital step towards eventually attaining same-day and near real-time trade agreement and settlement instruction. The potential costs and risks of not doing so, they argue, are simply too high for market participants to not engage effectively and successfully over the issue.