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US securities trading: German asset managers and securities dealers under pressure to act


The original article was published on MoneyCab. The following is a translated version in English (the original German version is below):

Sofia - All asset managers and other financial service providers from Germany who are involved in the international securities trading need to hurry. An important deadline for securities settlement in the USA will be shortened as early as the end of May next year. What is behind "T+1", what needs to be done now and how can specialized IT service providers help the financial community with the changeover?

Meanwhile, the US Securities and Exchange Commission (SEC) is as vigilant, swift and decisive as ever. To the surprise of many professional market participants, the SEC decided in February of this year to implement shorter settlement cycles in securities trading - and is now also putting asset managers and the like from Germany and the rest of Europe under pressure. Many had observed the SEC's move but were certain that there would be more time for implementation - a misconception.

T+1 is highly relevant for ETFs, funds and securities lending

The changeover to the new "T+1" principle will take place at the end of May next year - and almost all banks, brokers, custodians and other financial market players in Germany have a greater proportion of securities from the USA on their books. The switch from the previous T+2 model to the new T+1 model plays a major role, particularly for listed index funds and ETFs, but also for the lending of securities and the work of actively managed funds. After all, this means that the settlement period will be shortened to just one day after a security has been bought, sold or lent. Previously, there were still two days for these complex and detailed steps following a "deal". There would also be a lot of excitement in other sectors if regulators suddenly said that in future you only have half as much time as before to process a transaction.

Canada and the USA get serious at the end of May 2024

The reduction from T+2 to T+1 affects all financial companies with exposure to the North American market - as Canada is also following the example of the USA. According to market observers, European and Asian asset managers and brokers are particularly affected and will now have to review their internal processes and procedures within the remaining six months. Their biggest challenge is undoubtedly the massive time difference between their market hours and those in the United States and Canada.

The shortening to T+1 puts market participants under pressure, but brings many advantages to the market itself: Settlement risks that can arise within the time frame to transfer pieces for cash are reduced. The number of "fails" is thus theoretically halved. In addition, the available liquidity is increased because the time that capital is tied up in the settlement/CSD accounts is reduced. All post-trade processes are affected by the shortening of settlement cycles. Certain transactions that are already settled on T+1 terms today will in future have to be executed on T+0 - i.e. on the same trading day.

Taking the matter lightly and relying on the leniency of the SEC would be the fundamentally wrong strategy. The US Securities and Exchange Commission has always been known for its rigid and consistent market policy and its sometimes draconian penalties.

The experts at the financial technology company AQX Technologies have a clear answer to the challenges posed by T+1: automation. They offer their customers a customised platform for T+1 processing. "Efficient and future proof post-trade technology" is AQXT's promise. The company supports a wide range of companies in the financial community - from brokers and investment managers to banks and fintechs. AQXT's core product is called "XDESK". It is a highly efficient, fully automated post-trade management solution. The post-trade software streamlines and automates the entire process: from the recording of each individual trade transaction to the integration and processing of trade data and its distribution to all relevant counterparties.

The key to success has a name: Automation

Market participants would have to start converting all processes and systems now at the latest, looking both internally and externally, and set up the corresponding projects to do so. A survey conducted by the US Securities Industry and Financial Markets Association (SIFMA) in spring 2023 shows that the key to success, but also the biggest hurdle, lies in automation. Around two thirds of the financial market professionals surveyed see increased automation as the solution on the way to the new age of T+1.