The Benefits Of T+2


David Pearson, Strategic Business Architect, Fidessa, and Co-chair, Global Post-trade Working Group, FIX Trading Community.
The oft-quoted statistic for post-trade operations is the percentage of trades that fail at T+3, and for EU listed securities this is often below 0.04%. What this hides, however, is the cost to the business of maintaining this level of settlement. The focus for the operations manager is to allow the business to take advantage of the opportunities that T+2 brings, whilst improving post-trade efficiency and lowering operational costs. Not much to ask then.
At a time when operating costs are under the microscope as never before, operations managers find themselves looking not only at the cost of the exceptions management process, but also at driving down the price of success. The availability of open standards can allow rapid and accurate post-trade processing and leverage the investment in technology made in the front office. This then makes the persistence of data from the front office into the post-trade workflow achievable, and provides the best possible foundation for the post-trade process.
The critical areas that prevent timely settlement include the on-boarding process when dealing for a new account requires a combination of due diligence and risk assessment, and data gathering and storage. The availability and accuracy of the data comes sharply into focus for the brokers when they will have just one day to get everything in order. Timezone differences between buyer and seller can also delay the receipt of vital data and delivery instructions.
The benefits of T+2 to the EU market are significant, however. The harmonisation of the settlement period gives investors and traders greater certainty for cash management when modifying portfolios and managing risk. The ability to forecast the cash flows is paramount to an investment manager when portfolio performance is being closely scrutinised and the margins between success and failure are so narrow. Reduced counterparty exposure will lower the business risk and increase capital availability for market participants and will benefit all.
A consistent, and lower risk, trading environment for all investors is a primary goal for the EU market as it seeks to attract inward investment from around the globe. There is no doubt that T+2 will bring benefits to the investor; it is up to the market participants to make the most of the opportunity.