T+1: Hot Topics
September 18, 2023 - With little over 250 days now left to prepare, we share the regulatory state of play in four key areas.
Testing Times - Industry testing1 has begun, slowly but steadily. DTCC created the ability to test “end to end” in T+1 and T+2 environments concurrently.
A Global Trend? - Will the rest of the world ‘fast follow’ the U.S. and Canada’s lead on T+1? The United Kingdom and European Union are already analyzing the possibility.
Affirmations - Affirmations are proving a robust area of debate across the market given an SEC regulatory mandate for date and time stamping. With optionality in configuration of trade affirmation models, there is no best way to conduct DTCC affirmations. (We take a closer look in the following blog post).
Fund Focus - In European UCITS, there is a sharp focus on alignment of securities and investor trading settlement cycles to ensure funds don’t end up with too much or too little cash due to a mismatch in the securities and subscription/redemption cycles.
Affirmations in a T+1 World
September 18, 2023 - Mandatory same-day affirmations inclusive of new procedural and recordkeeping requirements (including date and time stamping of allocations and affirmations) are some of the most challenging parts of the SEC rules to ensure readiness for U.S. T+1 settlement. Different options exist in how affirmations can be processed:
Custodian-supported confirm matching
- The investment advisor provides trade instructions to their Global Custodian who then matches them against the related broker confirmations in DTCC’s Institutional Trade Processing (ITP) system to complete the affirmation.
- The investment advisor independently reviews the broker confirm in DTCC’s ITP system to ensure alignment with their own trade details and subsequently completes the affirmation, which is then provided to the custodian as the trade instruction.
- In addition to the above, the investment advisor may send the trade instruction to their Global Custodian directly. The Global Custodian is then responsible for matching the affirmation from DTCC’s ITP platform to the client trade instruction to prevent duplication of the trade.
It’s crucial that investment advisors choose an optimal operational model which meets their needs to ensure alignment with regulatory compliance, operational capability, time-zone coverage, and other risks in mind.
Synchronicity: T+1’s Greatest Challenge
September 18, 2023 - While asset managers and banks have rightfully focused on their own readiness, firms should not lose sight of the impact to their underlying clients and must target settlement alignment across a global network of entities and stakeholders.
Alignment of mutual fund investor and securities settlement cycles has fast risen in focus as U.S. T+1 impact analyses continue. Nowhere is this dynamic starker than in Europe where many UCITS funds have successfully attracted Asian investors, many of which hold U.S. securities.
Synchronizing NAV calculations, investor contract notes, and security settlement cycles remain paramount to raising or protecting UCITS investment from Asia. Cycle misalignment might result in denting UCITS distribution to Asian investors, as well as trade funding issues, overdrafts, trade failure penalties, tracking error and foreign exchange problems.
UCITS funds with European managers and Asian investors raise interesting asset servicing complexity that can only be fully addressed through global service models and efficient technology platforms.
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