The UK Accelerated Settlement Taskforce released its report, calling for the UK to adopt a T+1 settlement cycle. The report recommended that the UK, EU and other European jurisdictions be in alignment and the “immediate establishment of a Technical Group to take this work forward,” wrote chair of the Taskforce Charlie Geffen.
Andrew Douglas, formerly managing director for Government Relations for EMEA and Asia at DTCC and currently a consultant, announced on his Linked In that he has been confirmed by the UK government as chair of the Technical Group.
Many thanks to Charlie Geffen for successfully delivering his recommendation which contains a number of clear guidelines and targets for us to work with.
I am confident that with the continued support of more than 80 firms and industry associations from the first phase of this important project, that we will deliver a successful result, critical to the UK maintaining its position as one of the premier global financial services centres.
Watch this space and don’t hesitate to get volunteer your participation if you are not already doing so.
The one issue on which there are differences of view is the date on which the transition to T+1 should take place. Some wish to minimize the period of misalignment with the US which moves to T+1 in May next year whilst others wish to align with the EU for which there is currently no time frame.
It is also the case that the costs and burden of implementing a transition lie unevenly with the benefits some of which relate to creating a more efficient ecosystem. Unsurprisingly that leads to different perspectives. There is also the risk that nothing will happen unless there is a time frame.
“It makes no sense to set a date in stone at this stage not least because we need to learn any lessons from the US move,” Geffen wrote.
At the same time, he noted that “my view is that the advantages of setting a clear timeframe outweigh the disadvantages. In order to achieve the necessary coordination there needs to be a timetable for the Technical Group to assist the market in establishing consistent standards. That should enable planning to take place this year allowing for investment in new automation in 2025. In turn that allows for market standards to be established and various operational processes such as Allocations, Confirmations and trade level Matching to be mandated for Trade Date during 2025 in advance of the actual move to T+1. And enables new systems to bed in while taking a pragmatic approach that allows the UK to adapt to global developments. The Technical Group can then choose a date before the end of 2027 for the final transition to T+1.”
On securities lending, the report noted that the move to T+1 presents different challenges for each party to a transaction. For borrowers the ability to identify a borrowing requirement and manage sufficient inventory to collateralize a trade, happens over a close of business cycle resulting in a stock loan the following day. T+1 significantly compresses this process. For lenders the ability to receive notification from the beneficial owner and pass that on to a borrower, who then has to source replacement securities is similarly a significant challenge. A move to T+1 will need planning and investment to find solutions to these issues.
On repo, the report stated that repos are not subject to a standard settlement cycle and the Technical Group will need to establish that the repo market can continue to operate in a satisfactory manner following a move to T+1.
Adam Farkas, CEO at the Association for Financial Markets in Europe (AFME), said in a statement: “AFME agrees with, and supports, the conclusion of the report that UK securities markets should adopt a T+1 settlement cycle, within a reasonable timeframe. The report recommends a coordinated approach across the UK, EU and other European jurisdictions. AFME fully endorses this conclusion, and we further note that the report does not identify any material advantage for UK capital markets to move to T+1 out of step with regional partners. We therefore call on authorities to adopt a collaborative approach in order to reach a pan-European consensus on timing.