Europe’s shift to T+2 draws comment

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The change across Europe this week to move to a shorter clearing and settlement time of T+2 may come with a short term cost, but is expected to provide benefits over time, according to those involved with the implementation efforts.

Kashyap Kapasi, director, Strategic Solutions, Investment Services at Fiserv called the change “a major milestone in the harmonisation of Europe”.

“The shorter, standardized settlement cycle is expected to reduce overall risk and cost, which is a significant benefit to global market participants with exposure to Europe.”

However, it will take proper implementation of technology to ensure the benefits touted are achieved, Kapasi added.

“Over the longer term, the European migration to T+2 should advance the dialogue for greater global harmony in settlement procedures. Although the US remains on the T+3 settlement cycle for many securities, Fiserv believes that global market participants will ultimately help drive the migration to T+2 in the U.S., but the timeline for such change is yet to be determined.”

Steve Grob (pictured), director of Group Strategy at Fidessa, said that the move to T+2 would undoubtedly put pressure on the industry, as it effectively was cutting the clearing and settlement time by a third.

“That said, it’s simply too important a process to let it fail and so I doubt that we will hear any immediate horror stories. What we will see is a lot of late nights as operations departments struggle with the extra workload. Some buy-sides are actually abrogating their T+2 responsibilities to their broker who, for a fee, will wear the extra day.”

“In the longer term what we will see is much greater automation of process as firms recognise that simply throwing people at the problem is not tenable for reasons of cost and risk. This is where the buy-side, especially the smaller firms, will need to step up and take more responsibility. Of course greater standardisation will help, too, and it will be those standards that emanate from the front office that will come to dominate. This is because they follow the natural direction of the workflow – from order to trade to allocation, etc., and so the same message can be enriched along the way. At the moment much of post-trade tries to do the same jigsaw again once the trade is confirmed.”




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