T+1 War Rooms – Europe: Post-implementation reviews get underway as the focus shifts to the future

Most firms say they are waiting for a full month of data before a full analysis of the transition to T+1, but with the preliminary signs positive, attention is now turning to improving affirmation and fail metrics, reducing risk as T+1 intended - and Europe’s own settlement cycle shortening. 

By Jonathan Watkins

As the securities industry seeks continuous improvement, efficiency and risk reduction, the back-patting and rejoicing over a successful transition to T+1 may be filtering out finally and in its place a look at what is next. 

What occurred post-28 May was certainly the best-case scenario, but while affirmation rates sit around 95% and fails have shown few signs of a drastic increase, attention may now be turning to deeper analysis and improvement. 

“[The rates] should be a success, which they are – it could have been a lot worse, but actually they stayed consistent,” said one asset servicer. “And when we look at the mandate for US T+1, the whole premise was to reduce risk and, arguably, the fail rate being the same maintains that risk.  

“So I think the industry needs to do some work to understand what causes settlement fails. It’s a similar journey that we’re on within Europe, but the US is making some steps in the right direction there. DTCC is exploring auto partial, which is something that we do within Europe – and I think it’s also noted in our group that there’s certain improvements being rolled out institutionally as well.  

“The message generally is that everybody involved in the process, every practitioner on whatever role they perform, will now need to look at how can they move the dial to increase that risk reduction.” 

Small issues surfacing 

With some firms falling back into BAU, post-implementation reviews are being conducted, while for others, they are looking for more data – a full month from June specifically – with some deeper dives revealing small issues. 

“We did actually identify one issue through the post implementation review. We realised that a lot of our fair allocation reporting came out later in the day and lots of the portfolio managers were looking at it the next day, and so for the small number of reallocations that we were getting, it could potentially cause us a problem because we’d have sent out all the Swift messages and we’d have to undo and rematch everything,” said one participant. “So we’re trying to figure out the best way to improve the delivery of fair allocation reports and compliance – stuff that might trigger a reallocation. We haven’t had any issues yet, but it was something that we identified as being potential shortfall.” 

Another noted: “We’ve just had a few cancels and rebooks, where there’s been some confusion around settlement cycles, but nothing major. We are monitoring fails, but we just need a little bit more data 

“One thing we can see is the ‘Thursday dynamic’ play out where you’ve got higher cost of trading on a Thursday because you’ve got an additional two days of funding over the weekend. If clients become a little bit more knowledgeable around it potentially being more expensive to trade on a Thursday – especially if it’s trades that are larger sizes as well – you might see a trend of volumes being a little bit lighter on a Thursday relative to other days of the week.” 

Another buy-sider added: “There are a few data items that we’ve identified… It’s more on the operational side of automated cheques where an issue we have is around usage. Cash breaches are a big issue for us. So if the fund is long or short cash, it could bridge the usage for cash rules.We have semi-automated cheques but we’re slowly working out new ways of identifying at an earlier stage in the process of placing a trade. So there are definitely a few things that we’ve learned and we’re trying to improve on.” 

The UK’s move to T+1 

During the week that the UK held major discussions around its own move to T+1, the UK and Europe’s plans were also a point of discussion during the roundtable discussion from the outset. 

There were seemingly two views – one from the buy-side and the other from those involved in the UK taskforce assessing the transition. The taskforce view was that “there are no medals for doing it quickly, but there are for doing it right”. Meanwhile the buy-side appeared to feel that the priority was for the UK to align with Europe, but if that doesn’t happen, then get on with it as quickly as possible. 

“We are a different market, we have a higher percentage of overseas investment, FX is a bigger issue for us, so is funding. We have things to consider that weren’t considered with the US move,” said one participant. 

The opposing view has been ‘if the US did it well in their timeframe – why should the UK wait?’. One buy-sider commented: “For us it’s the disharmony between the markets that is the issue for us – so the quicker all markets move to harmony the better for us.” 

Another buy-sider said: “When we ask ourselves about the best alignment – it is the UK aligning with the EU which is important, but if that doesn’t happen then we are not concerned about the timeline.” 

During a panel discussion last week at the Accelerated Settlement in the UK event, moderated by Ayesha Ghafoor of UK Finance and involving experts from across the industry, experts cautioned against a copy-paste approach from the US model of transitioning to a T+1 settlement cycle due to significant differences in market structures and regulatory environments.  

Sebastijan Hrovatin, deputy head of unit, financial markets infrastructure unit at the European Commission, emphasised the need for careful planning and alignment within the EU context, stressing that while the US move set a global benchmark, Europe has to navigate its own path considering it has a diverse set of market infrastructures and regulatory landscapes.  

Andrew Douglas, chair of the UK T+1 Taskforce Technical Group, underscored the ongoing efforts to draft an implementation plan by 2025, emphasising the need for comprehensive stakeholder engagement and adaptation rather than a direct replication of US strategies.  

Picking up on that point, Sachin Mohindra, executive director, global banking and markets, client and market solutions at Goldman Sachs, pointed out critical differences between the US and UK markets that complicate a straightforward adoption of T+1. “It’s not as simple as that,” Mohindra noted. “The market structures are quite different; the US has a single domestic infrastructure stack, whereas Europe and the UK have multiple infrastructures.” He highlighted the need for a tailored approach that considers these complexities, including the role of clearing houses and the variability in transaction mechanisms.  

Mohindra emphasised the importance of learning from US successes in enhancing operational efficiency and reducing post-trade processing times but cautioned against a direct copy-paste approach. “For the UK, one immediate lesson was how the US defined the scope outside of regulatory remit only three months before go-live,” he added, contrasting it with the UK’s earlier engagement in similar discussions. He also added: “In the UK alone, we have more than one clearing house. These differences mean that it’s not just a copy-paste job you see.”