As we talk with US capital markets firms about T+2 settlement, we find varying degrees of preparedness. Some firms—particularly those with European operations and T+2 experience—see a fairly straightforward process ahead. Others might see a more complex implementation affecting functions, processes, technology and documentation across the middle and back offices, operations and compliance.
Through our work with European and US firms facing T+2 settlement, we have developed some questions that help assess preparedness for shortened settlement cycles. These questions include:
- Have you set up your T+2 governance forums, both internal and industry-facing?
- Compliance – Have you identified all current T+3-related policies and procedures, and gaps for T+2? Do these address legal, compliance, surveillance and regulatory reporting?
- Have you assessed technology gaps to support T+2 settlement?
- Have you assessed T+2 business and technology impacts? These include:
- Liquidity management, cross-border trading and securities finance
- Transactions processing facing internal business units as well as DTCC and Fed
- Payment cycles
- Have you thought about co-opting your T+2 work to also plan for T0 using blockchain or similar Distributed Consent Ledger (DCL) technologies?
- Do you have a detailed implementation plan and/or framework?
- What is your approach to internal and industry-wide testing?
To address these and other issues, firms need a variety of technological and strategic resources. They will need to undertake systems updates, including those supporting compliance, clearing, payments and collateral. They will also need to modify business processes, policies and procedures, and contracts. Transactions management systems will need updating; for example, batch processes will need to fit into the T+2 window. Large-scale test management may call for establishment of a testing Center of Excellence to support integration with industry-wide testing.
Finally, T+2 provides a good reason for firms to look at their blockchain strategy and roadmap, as some T+2 processes will be suitable candidates for blockchain automation. Forward-looking firms can use T+2 as a lever to upgrade operating systems and find additional efficiencies within middle- and back-office processes.