• Tertius Vermeulen, Client Partner at SmartStream


• 01.03.2024 08:30 am
#platform #slb #fx #sasla2024

Last week, I had the privilege of attending the Securities Finance & Collateral Conference SASLA 2024 in Cape Town. It provided a valuable platform for industry leaders to discuss - The future of Securities Finance in South Africa: How can we as an industry leverage the latest technologies. Looking at the implications of T+1 and the potential move to T+0. During a panel discussion, I shared insights on how this transition affects Stock Lending and Borrowing (SLB) technology and processes, sparking crucial conversations among participants.

The shift to T+1 settlement in the US will be profound, especially considering it's the world’s largest securities market. Institutions worldwide trading in US securities will feel its impact. Not only will US investors and service providers be affected, but investors and custodians in Europe, Asia Pacific, Middle East and Africa, will also face challenges due to time differences and increased complexity.

The move to T+1 settlement will necessitate a review of settlement practices by the industry players. Currently, these processes are often disjointed and not fully automated, leading to regular settlement failures. A lack of standardisation in financial data communication exacerbates these difficulties. Shortening the settlement window will further strain this already fragmented area. The move to T+1 is often perceived as merely a settlement concern, yet its impact extends throughout the entire trade lifecycle. Custodians hold a crucial position in addressing related challenges, underscoring the significance of prompt instructions aligned with counterparties to ensure smooth operations.

Some key take-aways from market insights:

1. Vendor support: Nearly 50% of institutions are seeking vendor support for the transition to T+1/0, indicating a growing reliance on external expertise.
2. Settlement transformation: The T+1 initiative prompts a re-evaluation of settlement processes with a focus on enhanced efficiency.
3. Strategic planning: Institutions are leveraging T+1 as an opportunity to strategise for T+0, reflecting a forward-thinking approach to market evolution.
4. Operational model reassessment: There's a renewed focus on operational models and staff deployment to align with evolving market demands.
5. SLB and FX re-evaluation: Institutions are re-assessing their SLB capabilities and FX processing methodologies to adapt to changing requirements.
6. Gather. Normalised, and Validate Static Data

Here are some market trends driving transformation:

1. Operational model: Adoption of ‘follow the sun’ strategies and relocation of operations and staff to optimise efficiency.
2. FX Processing: Embracing same-day FX, pre-funded arrangements, and custodian solutions for automated FX processing.
3. SLB capabilities: Enhancements in recall arrangements, SLAs, and settlement requirements to streamline SLB operations.

To navigate the transition effectively, institutions must transform their operational models to align with market trends and optimise resource deployment. They should also leverage experienced vendors, partnering with those offering automated workflows and seamless trade lifecycle management. Embracing straight-through processing (STP) is essential, involving the implementation of integrated systems for trading, counterparty management, and reconciliation across all stages of the trade lifecycle.

In conclusion, the discussions at SASLA2024 underscore the industry's collective efforts to adapt to the T+1 landscape. By embracing innovation, strategic planning, and collaborative partnerships, institutions can successfully navigate this transition, ensuring operational resilience and future readiness in a dynamic market environment.