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T+2 to become global settlement cycle, says Omgeo study

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Eighty per cent of respondents to a survey by Omgeo, a subsidiary of The Depository Trust & Clearing Corporation (DTCC) believe T+2 will become the global standard for settlement cycles within 10 years. 

Currently, settlement cycles vary between T+3 in the US, to T+2 in Europe and differing cycles across Asia, including T+2 in Hong Kong and T+3 in Singapore. 52 per cent expect the US to move to a T+2 settlement cycle within the next three years while 34 per cent and 14 per cent believe Canada and Japan, respectively, will do the same.
 
Tony Freeman, Omgeo’s Executive Director of Industry Relations, says: “It is encouraging to see overwhelming support for a globally harmonised settlement cycle to T+2, which would significantly reduce counterparty and operational risk across the financial markets. Harmonising settlement cycles globally will help to better facilitate cross-border trading, as well as reduce margin and liquidity requirements during market volatility. So far, Europe’s move to T+2 has been smooth, as recognised in the survey. However, there are still wide-ranging views on failed-trade penalties and on the sanctions that should be implemented for non-adherence. The future will bring further change, with more detail expected on the settlement discipline regime.”
 
The survey confirmed that, in terms of Europe’s move to a T+2 settlement cycle last year, 74 per cent of market participants believe the migration was smooth, with only 12 per cent citing they would have a low chance of meeting the Central Securities Depositories Regulation (CSDR) 99.5 per cent settlement efficiency target. There was an almost equal split in opinion on whether the proposed compensatory, not punitive, sanctions from the CSDR for failed-trade penalties would be enough to drive behavioural change.
 
Paula Arthus, President and CEO at Omgeo, says: “For firms with European trading activity, automating post-trade processes is critical. Our research confirms this. 62 per cent of respondents believe that it makes sense to send allocations and settlement instructions to broker/dealers on trade date and that broker/dealers must confirm allocations within just two hours. Furthermore, over 90 per cent think that accurate Standing Settlement Instructions (SSIs) are relevant for T+2 settlement cycles. Omgeo’s automated solutions, Omgeo Central Trade Manager (Omgeo CTM) and Omgeo ALERT, are well-positioned to help the industry meet this growing need.”
 
 

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