Helen Adair, Chief Product Office, Taskize, writes that summer is not quite over, and we’re almost one year away from T+1 in Europe.
The question is, just how hot under the collar is the market getting? UK and European T+1 readiness surveys suggest there is still much work to do, with firms highlighting concerns about the preparedness of service providers and counterparties.
While everyone is understandably focused on resolving settlements faster when the timeframe is compressed, firms also need to be asking themselves just how many of those problems can be prevented from occurring in the first place?
As things stand today, there are still significant gaps in T+1 preparations, so the remaining time needs to be spent carefully. One relatively addressable source of operational friction is getting counterparty and settlement reference data in order.
Currently, much of the discussion around T+1 has focused on trade data failures. These are settlement problems caused by mismatches in the economics of a trade, such as the amount, quantity or notional value. They are undoubtably a major issue and firms need systems capable of identifying and resolving them quickly.
However, alongside these sits a more preventable source of friction around incorrect or inaccessible reference data. This is information about a counterparty that exists separately from an individual trade and is reused across transactions. It includes very specific data like legal entity information, account details, standing settlement instructions and something as basic as knowing who to contact when something goes wrong.
When that information is incorrect, out of date or difficult to access, it creates additional breaks and manual work even when the underlying trade details are correct. Unlike the economics of an individual trade, much of this information is relatively stable and collected well before trading takes place, during onboarding and account opening.
Despite this firms can still find themselves checking settlement instructions, validating account details or simply trying to identify the right person at a counterparty after a trade has been executed.
The challenge is that under T+1, those delays become super expensive. Every hour spent resolving an avoidable reference data problem is an hour that cannot be spent investigating a genuine trade-level exception. And when the clock is running, the ability to route a problem immediately to the person who can solve it becomes part of an efficient settlement process.
With all this in mind, the aim has to be to move as much of this work upstream as possible. Where counterparty contacts, account details and settlement instructions can be validated before trading begins, they should be, with that information then accessible throughout the trade lifecycle.
Preparing for T+1 without addressing these problems is like buying more radiators while leaving the windows open. Firms can invest heavily in dealing with the consequences, but some of the pressure can be removed at source.
T+1 will inevitably put more pressure on post-trade teams as firms cannot eliminate every settlement exception before Europe makes the move, but they can reduce the amount of avoidable work reaching those teams. Come next October, every hour of operational capacity will become more valuable. Therefore, fixing the foundations now will pay off not only for T+1, but as settlement cycles continue to compress in the years ahead.
