By Laura Matthews
Impact of U.S. Accelerated Settlement Cycle Revealed in Citigroup Survey
A recent Citigroup survey has unveiled the unexpected and significant impact of the shift to a shorter settlement cycle for U.S. securities transactions earlier this year. The move to settle transactions one business day after the trade, known as T+1, has had far-reaching consequences for market participants worldwide.
The survey, which polled nearly 500 institutions, highlighted the challenges faced by buy- and sell-side firms, with 44% reporting a greater impact than anticipated. Europe bore the brunt of the changes, struggling with managing settlement and funding issues due to time zone differences.
Securities lending, funding requirements, headcounts, and funding costs were all affected by the transition to T+1, with securities lending seeing the most significant increase in impact across organizations.
The survey also noted that sell-side firms were particularly affected, with concerns about securities lending and recalls activities being significantly impacted by the accelerated settlement cycle. The preference for hiring over automation has left sell-side firms exposed to manual processing and exception handling.
Citi emphasized that more time is needed to fully understand the deeper impact of the accelerated settlement cycle. Industry associations such as the Depositary Trust and Clearing Corporation, the Securities Industry and Financial Markets Association, and the Investment Company Institute spearheaded the move to T+1.