T+1 settlement switch - Citco is here to help
16 April 2024 - The deadline to the T+1 settlement cycle change is now fast approaching, with just a month to go until the switch which takes place on May 28th for the US, and on May 27th for Canada and Mexico, which are aligned with the US.
The decision by the respective regulators to reduce settlement from T+2 to T+1 means timelines will be cut by 24 hours to agree and settle any trades on those countries exchanges for a wide range of investments, including US equities, corporate bonds, exchange-traded funds (ETFs) and Real Estate Investment Trusts (REITs).
Across the alternative investment market, the changes to the settlement cycle means investment managers’ operations teams must handle allocation and confirmation on trade date or else they will fail to meet the shortened timelines.
There are several impacts operations teams must consider, including around trade-matching, investing in the US from overseas, and how to prevent trades from missing the continuous net settlement process.
As an asset servicer, the Citco group of companies (Citco) is here to help navigate this change. Below, Citco’s Middle Office Solutions team outlines several solutions it offers in key areas.
Trade-matching support: Citco can help increase matching rates
With much tighter deadlines for receipt of an investment manager’s trade instructions, prime brokers, custodians and executing brokers have a much narrower window to enact trades.
To support buy side participants, Citco’s Middle Office Solutions team offers an outsourced service via Citco Æxeo® Trade Operations. In practice, this can help target affirmation rates of 95% or above for T+0.
The Citco Æxeo Trade Operations service connects portfolios to best-in-class matching vendors across all applicable instrument classes within one near real-time online trade operations dashboard.
It also provides Citco’s clients with oversight on the status of all trading activity, giving users the ability to visualize matching or fail statuses by trading counterparty, prime broker, custodian, fund entity and more. Combined with analytical tools, users have a complete top-down transparent view of volumetric trade data by instrument class across selectable date ranges, covering the full lifecycle of the trade.
The analysis can be particularly beneficial amid the shift to T+1 as it shows the percentages of a client’s trades being affirmed at T, T+1 or T+2 by broker.
Any failed trades are also captured via the service, allowing clients to again check the executing broker, the instrument types (equities etc.) and other details.
With full support from Citco’s dedicated trade operations team, clients benefit from active management of trade matching queues and close monitoring of trade fails.
Follow the Sun coverage
For investment managers outside of the US who do not have a dedicated team based there, T+1 is going to make same day affirmation challenging.
Unless investment managers have invested in automation and zero-touch processing, there could be a lot of manual work needed in a very short time-frame, putting additional pressure on their operations teams.
Citco offers true Follow the Sun coverage via its outsourced service to help solve this problem. With a dedicated operations team to service trades out of Asia, Europe and the US, Citco is ready to act on behalf of clients to ensure trades are matched and settled.
Crucially, this is not only aimed at large firms. Citco supports operations teams regardless of the size of their strategies.
Streamline and oversee settlement
The changes to settlement timings mean so many key components of a trade - from comparing settlement details, to trade matching, and resolving pre-trade problems - must be completed much quicker post the impending deadline.
If this does not happen, there is a risk trades cannot move into the shortened settlement cycle and then end up missing the continuous net settlement cycle process.
To avoid this unwanted outcome and all the associated headaches that come with it, there are various systems investment managers can use.
Via the Citco Æxeo Trade Operations service, clients can get streamlined access and support for the settlement process. This includes assisting in getting a DTCC Trade Suite ID®, giving clients access to their agreed trade confirms. Insight to this process also provides additional oversight to buyside teams regarding any issues that could be hindering their trading activities settlement. All these features help to ensure trades do not miss the DTCC affirmation cut-off point.
Summary
The impact of T+1 is at the top of many operations teams’ agendas within the alternative investment universe, but the real impact of the changes will not be felt until the May deadline passes and the new rules come into force.
Citco’s Middle Office Solutions team is here to help via the above suite of solutions. Using the latest technology and automation capabilities, combined with its global footprint and long history of operational excellence, Citco is ready to provide support as the alternative investment market shifts to a T+1 world.