Securities and Exchange Commission chair Gary Gensler today urged the UK to set a firm deadline to implement T+1 around which stakeholders can coalesce, and ensure that robust pre-trade processes are in place ahead of time.
“There are many lessons from our experience,” Gensler said in reference to the US’s introduction of a T+1 settlement cycle for equities, corporate bonds and municipal funds on May 28.
“One of the most important is just setting a date because until you do that it is a lot of discussions,” he said.
“Another is that the transition to T+1 is a team sport for everyone involved, from brokers to service providers and stock exchanges, among others.”
Mexico, Canada, Argentina and Jamaica moved to introduce similar settlement cycle changes at the same time as the US.
Speaking at a UK Finance conference on June 20, Gensler added that another critical lesson was having robust pre-trade processes in place before T+1 was established.
Such processes are known as affirmations, and ensure that parties involved in a trade have the correct information to ensure a transaction occurs.
Gensler observed that, in the US, clearing houses already had to facilitate straight-through processing on the same day, which in turn helped with the transition to T+1.
While the move had brought about, “collective net benefits”, it had also come with transition costs and changes to business models, he added.
“For instance FX managers may need to change their base of operations. In this case time zones do matter; you have an advantage the further west your time zone is,” he said.
“Some EU asset managers moved staff to do trades during US morning time and European evening time. This gives them more time to do the trade.”
In March the UK’s T+1 taskforce technical group published a report exploring how T+1 should be implemented.
It is expected to publish another report with further recommendations by the end of the year.
“Preparation is everything. The gauntlet has been thrown down and we need to catch up if we want to retain London’s place as a premier financial market,” said Andrew Douglas, who chairs the UK T+1 taskforce technical group, at the same event.
