The move to a T+1 settlement cycle in the US capital markets is now less than two years away. Currently being expected for Q3 of 2024, it’s a profound change that will see trades across several equity and fixed income products switch to next-day delivery of the related cash or securities.
However, being aware T+1 is coming is one thing. Being ready for it is quite another. And in our view, many firms are still underestimating the time, cost and effort involved in moving to T+1. Why do we believe this is the case? Because firms themselves have told us. To gauge the current state of progress towards T+1, we’ve recently surveyed 100 buy- and sell-side executives in the US, UK and Canada about their T+1 programs.
We’ll be releasing the full results soon, but to whet your appetite, here’s a sneak peek. And three top-line findings come across loud and clear.
Three top-line findings from our T+1 settlement survey
The first is around program mobilization. In a LinkedIn post back in April, Accelerated Settlement: the future of trading is here, my colleague Dewi Novianty shared the current recommended industry timeline—which says firms should now be in the implementation phase of the updates to support and enable T+1.
That’s the theory. But the reality is different. Around 40% of the respondents participating in our study say they’ve yet to mobilize their formal T+1 programs. They need to do so. Fast. Otherwise, they might risk being left trailing by their competitors—or even not being ready to go live by the deadline.
Second, budget. Most firms are now in the midst of budget planning for 2023. As a major business-critical program, the T+1 transition should be a priority and warrant the appropriate budget allocation to support a successful transition.
Our survey shows that 42% of respondents expect their firm to spend between US$6 and US$10 million on T+1 over the next three years (2022, 2023, 2024). Put simply, we think this might not be enough. By way of comparison, it’s just a fraction of the amount we estimate firms have spent on other large enterprise-wide programs like LIBOR or moving to T+2. To compare: In 2021 alone, most large global banks spent a reported average of US$100 million each on the LIBOR transition.
Firms might be underestimating the total cost of the T+1 program, perhaps because they’re focusing on spend by their individual functional group (operations, technology, etc.) instead of total cost across the firm. Firms might need to take a more holistic view—and allocate budget accordingly.
Artificial Intelligence and automation are key to reaching T+1
Third, approach. The main hypothesis for our survey—as highlighted in the above-mentioned LinkedIn post—was that automation and artificial intelligence (AI) could be a key component of a successful transition to T+1. And on this aspect, the firms in our survey sound optimistic. Fully 83% claim automation is already embedded (and optimized) in their trade lifecycle, and 73% say the same about AI.
So, they’re already well placed to capitalize on these technologies to enable T+1? Other findings from our survey suggest not. A majority—60% of respondents—say at the same time that more than 20% of their trades are still manually touched at some point. That’s hardly optimized automation. In fact, it indicates an opportunity to further enhance existing AI and automation solutions to help reduce manual intervention across the trade lifecycle.
That is just an early preview of our T+1 readiness survey. The overall message? T+1 will be here sooner than you think—and there is no time to lose. Stay tuned for further findings and Accenture insights on areas like automation, AI, and issues to consider on the journey to T+0.
Thanks to Mackenzie Meyer for contributing to this blog.