It’s too soon to think about T+0 in Europe, said panellists at AFME’s inaugural Operations, Post-Trade, Technology & Innovation Conference (OPTIC).
The comment came from a panel entitled ‘Solving the Settlement Efficiency Challenge’, which considered how the number of settlement fails can be reduced as regulators look for solutions in a world hurtling towards increasingly shorter settlement cycles.
The main conclusion that the panellists reached was that there is no single root cause that can be used to explain settlement fails. Alex Dockx, executive director at JP Morgan, highlighted the data issues plaguing the industry. Data is lacking in quantity and arriving delayed, and is not transmitted in a way that makes market-wide and cross-asset comparisons possible, he said.
Matt Johnson, director of ITP at DTCC, concurred, stating that data quality, standardisation, and the frequency at which data can be provided are significant challenges. However, on the topic of data standardisation, he acknowledged that there will never be a “one-size-fits-all” option — an issue that has been seen across the industry.
Alina Laura Dragomir, senior policy officer at ESMA, argued that firms need to provide more information to regulators to avoid fails and improve systems. She stated that without this information, fail causes cannot be identified and improvements cannot be made. With market communication, however, services can be put in place to provide quicker access to data, and the tools to make use of this data “in a meaningful way”.
The geopolitical situation was inevitably cited as a factor, a recurrent theme across panels. Dragomir claimed that, due to a variety of global events, cash penalty efficiency was difficult to measure, and said that a longer assessment period was required. She also mentioned that ESMA is currently developing new ways to measure settlement efficiency.
A need for better communication between front and back offices was stressed by Daniel Carpenter, chief executive officer of Meritsoft, who stated that firms must take a greater interest in settlement fails or risk significantly denting profitability. He called for integration of the back office with the wider ecosystem, and said that the back office should not be held solely responsible for settlement fails.
Technology’s role was agreed on to be essential in reducing fail rates. Dockx posited that technology has the potential to increase efficiency, a sentiment that Johnson agreed with. The latter predicted that the shift to T+1 will lead to an increased technology budget for firms as they require further automation to keep up with market demands.
Johnson went on to say that manual processes are the main problem causing settlement failures. He stated that technology has moved on “leaps and bounds,” and is able to more efficiently and effectively manage the settlement process. Those still using manual processes, therefore, are more likely to encounter fails.
However, Carpenter recognised the difficulties that companies may face in their adoption of technology. The number of areas that firms have to cover mean that even if technology is available, it can be difficult to budget and organise.
Towards the end of the panel, Dockx concluded that there were five things that the industry needed to improve settlement fail rates: industry momentum, refinements to the process, consistency across markets, an investigation into what causes fails, and non-prescriptive regulations.
Closing with audience questions, the panellists asserted that Europe should not be focussing on T+0 settlements just yet: “walk before you can run”.
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