As financial institutions prepare for the continued evolution of the settlement cycle, firms must have the right people, processes, and technology in place to meet T+1 settlement requirements.
With the May 2024 compliance date fast approaching, the shortened cycle presents a pressing need for impeccable data governance. Successfully transitioning to T+1 hinges on access to high-quality, real-time data on trades, affirmations, securities custody, cash positions, and more. The affirmation process that used to occur on settlement day minus one will shift to T+0 at 9 p.m. – leaving a short window to clear and settle trades.
To meet the accelerated cut-off, both US and non-US institutional investors will need to adopt a variety of new processes.
The Data Governance Essentials
Clean and accurate data is crucial in a world where the settlement window will dramatically shrink. To meet the new standards, firms should consider how they manage and access data on six key components:
- Custody of Positions: Firms must understand where positions are custodied and allocate transactions to the right custodial agent to ensure timely settlements.
- Cash Balances: Keep a close eye on cash balances. Understanding cash balances and the cash ladder by currency and custodial agent will enable firms to forecast cash flow and plan for T+0 and T+1 needs.
- Trade Files and Allocations: Ensure clean and accurate data around your transactions and their allocation processes. Misallocations can result in failed settlements.
- Affirmations: Firms must efficiently process affirmations to meet the new timeline and avoid fails.
- Stock Borrow Transactions: Manage securities lending data, including borrow rates and liquidity of assets you may need to return securities. Missing deadlines to return securities will have a cost impact that will be a bitter pill to swallow.
- Corporate Actions: Stay informed about voluntary corporate actions, as shortened settlement cycles will accelerate timelines to respond to an event.
It’s 9 p.m. Do You Know Where Your Data Is?
While technology is undoubtedly part of the solution, it’s the data element that will put firms ahead.
As firms prepare for T+1, access to clean data and the know-how to use it effectively will streamline processes. With global operations that span different time zones, firms must be able to smoothly pass the baton between their teams. A cloud-based platform enables teams around the globe to help settle trades and understand positions, affirmations, custody, cash, and more.
While automation will be part of the solution, firms will still need human oversight, particularly for unexpected issues. Timely access to accurate data about trade settlement life cycle will empower teams to swiftly meet the settlement timeframe.
Creating More Efficient Processes
When institutions master their data, they can confidently navigate the operational challenges of T+1 settlement cycles. While some firms may approach T+1 with a “throw tech at it” mentality, a data-first approach enables firms to prioritize data quality, real-time information, and operational efficiency.
Mastering data from trades, affirmations, securities lending, cash balances, and more is the not-so-secret path to navigating the operational challenges of faster settlement cycles. While technology certainly has its role, a firm’s ability to effectively harness data will set them apart. By recognizing the fundamental importance of data governance, firms are well-positioned to respond to a shorter settlement cycle.
As the financial industry continues its transition to T+1, understanding the significance of data governance will be the key to staying ahead of the curve. Just remember, when it comes to T+1, it’s not just about the tech; it’s the data that will lead your firm to a successful transition.
Ted O’Connor, Senior Vice President, Business Development
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