The operations industry has been focused on shorter settlement cycles in the U.S. for the past two to three years while Europe has made the transition from trading data plus three business days (T+3) to two business days (T+2). At the same time, Asia-Pacific has also been grappling with the push for shorter settlement.
Still, it’s the U.S. market we’re obsessed with.
Market research firm Celent has just released a report about firms in Asia-Pacific and this issue, “Europe T+2: Is Asia-Pacific Ready?” The report digs into the issues that A-P firms, which are used to T+3, encounter as they trade on European venues that are now T+2. “Crucially, market participants in Asia-Pacific trading on European venues are also required to adhere to the shorter settlement cycle, or face fines for failed trades,” according to Celent.
For the report, Celent surveyed more than 30 investment managers, broker/dealers, and custodians in Asia-Pacific and asked them about their readiness for the shorter settlement cycles in Europe. “The survey found that most firms had started retooling processes and technology to enable T+2 settlement for European issues. Even some firms with STP-enabled middle office operations and trading in T+2 markets such as Germany needed to enhance their technology and processes to support the EU T+2 regime,” according to Celent.
The study, sponsored by post-trade services provider Omgeo, focuses on the multiple impacts that the European move to T+2 had on the brokers and investors of Asia-Pacific. Celent researchers also review how the time zone difference with Europe “puts market participants in Asia-Pacific on a considerably tighter post-trade schedule than locations in Europe. For firms with any significant level of trading, automating post-trade processes will be essential.”
The European T+2 move is “a dress rehearsal for the day when T+2 becomes the global norm for securities settlement,” says Neil Katkov, PhD, senior vice president of Celent’s Asian Financial Services Group and author of the report. “How Asia-Pacific responds indicates the extent to which the region’s internationally focused firms have efficient, flexible processes and technology that are ready for the operational challenges ahead.”
The Europe T+2 move affected Asia-Pacific firms’ technology, operations, and trading strategies, according to the report. It also impacted IT spending levels for system upgrades to accommodate the new Europe T+2 regime.
At the risk of being called guilty of shameless self-promotion, FTF News is putting the finishing touches on a special edition of our magazine that will be focused entirely on the struggles that European firms had when meeting the call for T+2, and the roadblocks to T+2 in the U.S. The issue will be coming out soon.
We will keep you posted on our progress.
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