Time is of the essence in the global securities markets. It may be a reliever for you, as many securities markets operating across the globe are shortening their securities settlement cycle from the date of execution(T+2) to just one single day, T+1 Settlement. Though it is enticing news for many participants, how well prepared are market participants for this switchover? What does this shift bring to the table? Are they on track for the transition? How are they prepared for the automation to drive their post-trade processing in a T+1 world?
Shifting to a T+1 settlement cycle primarily aims to mitigate pre-settlement risks arising from counterparties failing to meet settlement deadlines.
This move helps manage risk by aligning with the practice of clearing transactions through central counterparties (CCPs). Consequently, the reduction in the settlement timeframe leads to decreased margins and a subsequent decrease in the required capital. This enhances capital efficiency, bolsters liquidity, and results in cost savings. The US Depository Trust & Clearing Corporation (DTCC) approximates that eliminating one day’s exposure to risk could potentially result in a 41% reduction in the volatility component of CCP margin requirements. Any entity failing to be ready by the deadline will have severe impacts on its business. Our IMS trade process solution is designed to streamline your processes in an effort to reduce risk and strengthen and modernize the securities settlement cycle.
Below shared are the perks of experiencing the transition from T+2 to T+1 settlement.
The shift from T+2 to T+1 settlement implements a shorter settlement period, reducing pre-settlement risks and counterparty risk management.
T+1 settlement will substantially improve market liquidity by making funds easily available from transactions for the participants. This enhances liquidity benefits for market participants, promotes a more dynamic, and builds a responsive capital market ecosystem.
T+1 settlement leads to lower margin requirements for both buyers and sellers. This reduction in margin requirements frees up capital for market participants and minimizes their exposure, contributing to a more efficient and secure trading environment.
The faster settlement cycle of T+1 accelerates capital turnover. This, in turn, enables quicker capital reinvestment, facilitating more agile liquidity management and optimizing the deployment of financial resources.
ECS Fin is an engineering enterprise that specializes in process optimization. We design software solutions with a systems approach to transaction processing.
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