Transition to T+1: Automation costs should be less than a lunch meal
As the US completes its transition to a T+1 settlement cycle and the UK and Europe follow suit, many are considering what lies ahead and how trade processes will evolve. During the FIX EMEA Trading Conference, industry experts emphasized the importance of automation in transforming trading processes, highlighting that it does not need to be costly.
In a significant move, the European Securities and Markets Authority (ESMA) unveiled plans for the EU to adopt a T+1 settlement cycle by October 11, 2027. The UK also committed to this timeline earlier this year. This shift towards a shorter settlement cycle is anticipated to unlock over £1 billion of margin in the UK by mitigating counterparty risks. A similar trend was observed in the US, where the transition to T+1 in May led to an estimated reduction in clearing default funding of roughly US$2 billion.
Discussing the benefits of a shorter settlement cycle, Sasha Mills, the executive director of financial market infrastructure at the Bank of England, emphasized the importance of reducing counterparty risks for both financial institutions and central clearing counterparties (CCPs). This reduction is expected to prompt CCPs to release substantial margin funds to their members and clients. Notable figures such as Andrew Douglas, chair of the UK Accelerated Settlement Taskforce, Jeff Mooney from the US Securities and Exchange Commission, Matt Johnson from DTCC, Huw Gronow from Newton Investment Management, and Tanith Johnson from Instinet convened at the FIX EMEA Trading Conference in London to explore the future of trade processing and the role of automation in enhancing global efficiency.
Automation emerged as a central theme during the discussions at the conference. Experts emphasized that while the transition to a shorter settlement cycle is crucial, it should not come at a prohibitive cost. The overarching message was that automation is key to streamlining trade processes and harnessing operational efficiencies without breaking the bank.
The emphasis on automation aligns with broader industry trends towards digital transformation and technological advancement. By leveraging automation tools, financial institutions can streamline post-trade processes, reduce manual errors, and enhance overall operational agility. The collective insights shared at the FIX EMEA Trading Conference underscored the industry’s commitment to embracing automation as a means to drive innovation, mitigate risks, and optimize trade processing in an ever-evolving financial landscape.
As financial markets continue to evolve, the adoption of automation is poised to play a pivotal role in shaping the future of trade processing. By prioritizing efficiency and cost-effectiveness, industry stakeholders are well-positioned to navigate the complexities of a T+1 settlement cycle and drive meaningful progress towards enhanced operational resilience and global market efficiency.
