Today, capital markets firms in North America are mobilizing their efforts for the transition to T+1 settlement in 2024. With this deadline quickly approaching, any firm that hasn’t yet launched its T+1 program, should do so as a matter of urgency: a point we stressed in a previous blog where we drew insights from our recent survey on T+1 settlement readiness among capital markets firms.
However, as the results from this survey also highlighted, today’s settlement agenda already goes beyond T+1. Many respondents we surveyed told us that, as well as aiming to transition smoothly to T+1 by the deadline, they’re also looking to future-proof their settlement solutions and leverage current efforts to prepare for an ultimate transition to T+0 settlement.
A couple of statistics from our research tell the story. Of the 100 individuals we surveyed from 73 capital markets firms across the US, UK and Canada, 86% agreed that their organization is also considering settlement on T+0 in their current T+1 efforts. Firms are also looking at what technologies will be needed to enable T+0: 95% of respondents agreed that the use of blockchain or distributed ledger technology (DLT) will play an important role in the settlement process going forward.
An eye on the future
The message? Most firms are preparing for the immediate challenge of T+1 while keeping an eye on the longer term. And they’re right to do so. While it is true that a roadmap to T+0 is yet to be defined, it will very likely be rolled out with interim options—such as T+1 with intra-day T+0 settlement; T+0 at end-of day; and in phases by product type or asset class. But whatever route the journey follows, the fact remains that a variable settlement window, including the different T+0 options, would be the future of settlement.
We believe the transition to T+1 presents firms with an opportunity to take steps that could help kick-start their T+0 journey when time comes. We also agree that DLT may well be a key technology to enable T+0. While others might eventually come into play, in this blog, we’ll look at the potential of DLT.
Three focus areas to explore
So, what should firms be focusing on today within T+1 efforts to help pave the way to T+0? As the industry navigates toward a future of T+0 settlement, we think there are three things to think about to make the most of the current T+1 efforts.
- Data. The core of enabling T+0 is data, in all its various dimensions: the access to it, the timeliness of it, and the ability to perform real-time—or at least near-real time—analytics on it across business functions. With all these aspects in mind, firms should be emphasizing a strong data governance structure to prioritize and maintain data quality across the trade lifecycle. Establishing such a data governance would be key for firms to help realize the full benefit from using modern technologies, not to mention the analysis and identification of root causes for trade breaks and helping with resolution.
- Technology. As we mentioned earlier, going to T+0 demands technology that’s at least near-real time, meaning there is no place for things like end-of-day batch processes and cumbersome file transfers. So, firms may want to start experimenting now with these technologies. This could mean using cloud infrastructure, building data mesh, or perhaps DLT for internal processes such as trade management or reconciliation, and thus gain first-hand experience and learn about the art of the possible.
- People and organizational structure. T+0 demands transformation to an operating model that can support around-the-clock operations across time zones, enabled by the right resources in the right locations globally. Firms should take steps to define the operational workflow and resourcing requirements this would involve, and stand-up ‘follow the sun’ support models that could provide 24×5 coverage for their future settlement function when needed.
Moving to T+0 settlement would ultimately entail a move from the message-based reconciliation as we know it today to a shared golden source data construct that could operate across corporate boundaries.
Uplift the technology knowledge now
We think zeroing in on these three areas, and taking the right steps in each, could help firms position themselves for the future of settlement beyond T+1. But across all three, there’s also something else to consider. Assuming that DLT is the future of settlement—and our research suggests most of the industry believes this is the case—one of the most beneficial no-regret moves will be educating people throughout the firm about this technology so they know what’s coming.
This could mean running training and awareness programs to provide everyone with a basic understanding of DLT. There’s no downside to doing this: even if DLT isn’t ultimately used to enable T+0, there’s no doubt it could be a core technology for many other capital markets activities going forward. So, the more your teams know about it, the better.
The move from T+3 to T+2 back in 2017 was in our view reflective of technology possibilities at that time. Today, according to our survey, we are at a point of technology advancements and level of confidence within the industry that firms could not only handle the imminent T+1 transition well but are also ready to make changes necessary for same day settlement in the future. This could mean that a move towards T+0, once the markets have agreed on a same day settlement protocol, might not require another wholesale change of processes and the underlying technology, but could entail little more than a configuration change for those who act wisely now.
Thanks to Dewi Novianty and Yash Vazirani for contributing to this blog.