With the implementation date of T+1 in the United States and Canada now clarified, market participants must plan how to adjust their operations, processes, and technology for May 28th[1]. This is a significant process, regardless of the size of the firms.

The proposal to shorten the settlement cycle has been a strategic topic of conversation throughout 2022 and 2023. In a T+1 environment, manual legacy processing is no longer feasible. However, for many banks and broker-dealers, the road to automation is complicated by legacy systems that will require years or even decades to upgrade or replace.

S&P Global Market Intelligence, in partnership with ValueExchange, has conducted an in-depth analysis of how firms are transitioning from legacy technology and how it is perceived as a yield-generating tool rather than simply a replacement cost. Additionally, we have conducted a comprehensive study on how firms are restructuring their corporate actions model and how data standards are driving automation.

Banks and brokers are faced with systems that are, on average, up to 12 years older than their buy-side counterparts. This results in reduced system flexibility, higher processing costs, increased manual interactions, and potentially increased security risks on a daily basis to a significantly higher degree. Among various stages of the trade cycle, clearing and settlements emerge as the most critical area of legacy risk today. Read the full report.

Many firms often underestimate the cost of corporate actions, as they hide behind back-office (or middle-office) costs. The actual end-to-end costs of processing corporate actions are not widely known, and when revealed, they often exceed expectations. The reliance on legacy technology and manual operations contributes to driving costs higher. The research suggests that firms can reduce costs by implementing data automation and outsourcing. Read the full report.

Some additional considerations with an Accelerated Settlement Cycle:

• What does the timeline look like for firms? Will firms be ready by this date?
• What are the primary technology considerations for market participants?
• What are the main functional considerations (FX/Prefunding/Securities financing/New cut-off), and how will those be addressed in a compressed settlement time frame?

There are many unanswered questions, but now is the time to prepare.

Cash prefunding:
While cash prefunding, or short-dated forex settlements, will help mitigate the risks for funding US trades settlement. However, this might not be possible without an effective target operating model that can predict the approximate cash funding or connectivity with CLS.

Loan recall:
Is adhering to the loan recall cut-off time (Trade date 23:59) a feasible solution for broker-dealers to resolve issues related to securities financing transactions? Will it discourage lenders from seeing the possibility of failure, or will they ask for more revenue share due to increased risk? Alternatively, could it open channels for custodians to offer automatic stock lending from large inventory pools?

Cross-border settlements:
A significant portion of risk arises in cross-border settlements, as trades executed in the US/Canada market may already be T+1 by the time they are executed. Following a "follow the sun" model, may require additional resources to be deployed to rectify any trade inefficiencies, failures, mismatches, or to manage trade allocation, confirmation, and affirmation. Alternatively, this situation could give rise to a managed services operating model for transaction management services.

New cut-off:
Adopting the CTM-M2I feature can assist firms in automatically affirming their trades after the allocation/confirmation process. However, the new timelines for the allocation/confirmation process would require firms to either extend their operating hours or adopt a "follow the sun" model to rectify any discrepancies.

Legacy transformation:
According to our research, an average Legacy Tech project has the potential to deliver efficiencies equivalent to USD 833k in spend and 16 full-time equivalents (FTE), which is the highest among all areas, particularly in Clearing and Settlements, and Corporate Actions where the Legacy Tech challenge is most acute.

Corporate Actions:
Based on our research, those who have outsourced corporate actions have been able to eliminate numerous daily processes/checks and reassign critical, highly experienced headcount to focus on complex issues and value-adding strategic projects. As a result, the overall impact of T+1, CSDR, volume growth, and people turnover has been noticeably lower compared to those who continue to handle their corporate actions in-house.

A faster, simpler way to achieve T+1: S&P Global Market Intelligence has made significant investments in our data and software offerings for corporate actions and securities processing.

Our Corporate Actions Solution supports T+1 settlement with low-code automation, data validation, and direct connectivity with the U.S. market infrastructure to automate workflow.

Designed to enhance straight-through processing capabilities in legacy environments and existing processes, our solution utilizes smart integration and onboarding accelerators to streamline implementation and automate corporate actions. Our solution provides efficiency and risk mitigation measures that include:

• Proactive real-time alerts for when a corporate actions-specific stock record goes out of balance due to real-time position and transaction updates.
• Granular contract-level stock records at the individual corporate action level, enabling tracking of claims, counterparty elections, sending cover instructions, applying a manufactured tax on loan/borrow contracts, and more, without the need to access multiple systems.
• Real-time position and transaction data refresh capabilities.
• System-agnostic position and transaction consolidator that creates a granular stock record for more efficient corporate actions processing.

Read more about S&P Global Market Intelligence corporate actions HERE.

Our Securities Processing solution, with integrated Corporate Actions and Proxy Voting modules as mentioned above, supports T+1 settlement with low-code automation and direct connectivity with U.S. custodians through ISO15022 standards to facilitate North American settlements.

Our Securities Processing solution empowers universal banks, custodians & retail brokerage institutions to redefine their post-trade technologies and processes for gaining a competitive advantage. Key features include:

• Real-time trade enrichment with pre-defined rules and automated electronic trade confirmations.
• Configurability to handle multiple settlement cycles based on settlement class and market combination.
• Eliminating business process duplication with a single solution across business lines, geographies, assets, and entities.
• Connectivity to treasury desk for FX settlements (Aggregated/Special FX).
• Connectivity to the lending desk to provide a real-time overview of the latest positions, including corporate action changes.
• Out-of-the-box ISO15022 messages to communicate real-time settlement status and confirmation for both cash and securities.

Stay informed, streamline your operations, and maximize efficiency to unlock the full potential of your investments. Click here.

Additional Insights
In our recent T+1 Settlement podcast in association with the Global Custodian, and industry experts, we examined some of the critical questions facing firms in the short and long term. Listen Now

Let's discuss your T+1 strategy!
There's still time to achieve T+1 by May 2024 without disrupting normal business processes or uprooting legacy systems. Ready to unlock the benefits of T+1 settlement?

Let us guide you through the implementation process and help you realize the full potential of this industry standard. Contact us for a consultation and take the first step towards a more efficient and compliant post-trade environment.

[1]SEC's Final Ruling: Shortening the Securities Settlement Cycle

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.