Rachel Fahey is Assistant Vice President, Transfer Agency Product, at BBH Investor Services
Q: Is our fund required to move to a shorter cycle next year?
A: On the securities side, the shift to T+1 is mandatory, though there is no explicit obligation to shorten the investor settlement period. While a fund could technically remain on a T+3 cycle, operating under a European T+1 framework creates a widened two-day gap between market settlement and investor cash flows. This misalignment significantly compresses the window for fund managers to complete funding, trade matching, operational checks, and final settlement. Furthermore, time zone mismatches will intensify these challenges for global and cross-border investors, particularly those based in Asia.
Q: What are other firms doing?
A: We feel there’s potentially a false sense of security because the US T+1 transition went smoothly. Just because that was the case, we cannot necessarily expect the same in Europe. There are a number of reasons why the European process may pose more challenges, not least of which is the fragmentation among the 14 local currencies, 35 listings exchanges, and 41 trading exchanges involved in this one.1
Q: What do we need to consider from a TA perspective in choosing an approach?
A: The first hurdle is deciding, if you’re operating in T+3 at the moment, do you stay there, make the jump to T+1, or find a compromise at T+2?
The first conversation the asset manager should have is with their distributor to determine if they can settle in the T+2 or T+1 environment that is being considered.
Investor appetite will also need to be gauged in determining whether such fund(s) could feasibly shorten their settlement cycle to T+1. In reality, settling on a T+2 basis gives investors in all locations more time to settle.
Asset managers will also need to evaluate their portfolio construction and geographic reach.
Some other key questions include:
- Is it worth switching to a global operating model to minimize time zone and cut off challenges? A global operating model does enable certain functions to be provided in other jurisdictions to ensure the NAVs are released earlier, and investors can receive their contract notes sooner.
- What impact might the switch to T+1 in Europe have on your distributors and the investor experience?
- Will your foreign exchange and currency management arrangements be able to support European T+1?
- How will you manage in a T+1 environment if you do not change the investor settlement period?
Q: Can you walk us through an example of the how adjustments in cutoff times will change?
A: This will depend on your operating model and the geographies you operate in.
Consider this as an example: the investor pays the fund for shares on a T+3 basis, but the asset manager buys and settles their security purchases on the market on T+1. In this scenario the asset manager must consider how to fund the securities purchase – via an overdraft or loan or holding a large cash balance.
Broadly speaking, asset managers will need to have a careful plan in place to deal with any post T+1 liquidity or currency mismatches.
