A comprehensive study published by Omgeo, a wholly owned subsidiary of The Depository Trust & Clearing Corporation (DTCC) and the global standard for institutional post-trade efficiency, reveals that 80% of respondents believe T+2 will become the global standard for settlement cycles within 10 years.
Currently, settlement cycles vary between T+3 in the U.S., to T+2 in Europe and differing cycles across Asia, including T+2 in Hong Kong and T+3 in Singapore. 52% expect the U.S. to move to a T+2 settlement cycle within the next three years while 34% and 14% believe Canada and Japan, respectively, will do the same.
Tony Freeman, Omgeo’s Executive Director of Industry Relations, said: “It is encouraging to see overwhelming support for a globally harmonised settlement cycle to T+2, which would significantly reduce counterparty and operational risk across the financial markets. Harmonising settlement cycles globally will help to better facilitate cross-border trading, as well as reduce margin and liquidity requirements during market volatility. So far, Europe’s move to T+2 has been smooth, as recognised in the survey. However, there are still wide-ranging views on failed-trade penalties and on the sanctions that should be implemented for non-adherence. The future will bring further change, with more detail expected on the settlement discipline regime.”
The survey confirmed that, in terms of Europe’s move to a T+2 settlement cycle last year, 74% of market participants believe the migration was smooth, with only 12% citing they would have a low chance of meeting the Central Securities Depositories Regulation (CSDR) 99.5% settlement efficiency target. There was an almost equal split in opinion on whether the proposed compensatory, not punitive, sanctions from the CSDR for failed-trade penalties would be enough to drive behavioural change.
Paula Arthus, President and CEO at Omgeo, said: “For firms with European trading activity, automating post-trade processes is critical. Our research confirms this. 62% of respondents believe that it makes sense to send allocations and settlement instructions to broker/dealers on trade date and that broker/dealers must confirm allocations within just two hours. Furthermore, over 90% think that accurate Standing Settlement Instructions (SSIs) are relevant for T+2 settlement cycles. Omgeo’s automated solutions, Omgeo Central Trade ManagerSM (Omgeo CTM) and Omgeo ALERTSM, are well-positioned to help the industry meet this growing need.”