The transition to a shorter settlement cycle for US securities transactions has had a more profound impact than anticipated, according to a recent Citigroup survey.
Implemented in May, the new timeline reduced the settlement period for equities, corporate bonds, and municipal bonds from two business days to one, known as T+1.
While this acceleration was designed to enhance market efficiency, it has introduced unforeseen challenges for global market participants.
Citigroup’s Securities Services Evolution survey, conducted in June with nearly 500 institutions, reveals that 44% of buy- and sell-side firms found the shift to T+1 to be “more impactful than expected.”
This finding highlights the broader implications of the accelerated settlement cycle on the trading ecosystem.
Europe faces the brunt of disruption
The survey identified Europe as experiencing the most significant disruptions due to the T+1 transition.
European firms struggled with settlement and funding issues, exacerbated by the time zone difference.
The shortened cycle intensified timing issues for overseas investors who rely on currency trades to fund their US securities transactions.
“Every area appears to have been more impacted than originally anticipated,” the survey stated, noting particular strain on funding, headcounts, securities lending, and fail rates.
Notably, securities lending saw the most considerable increase in impact, with 50% of organizations reporting issues, up from 33% before the transition.
Sell-side firms struggle with staffing and processing
The survey also highlighted significant challenges faced by sell-side firms, with 56% reporting substantial impacts on their securities lending and recalls activities.
Furthermore, 52% of banks and brokers noted that their staffing levels were adversely affected.
Many firms chose to increase headcounts rather than invest in automation, resulting in higher volumes of manual processing and increased exceptions triggered by clients.
Citigroup concluded that further analysis is needed to fully grasp the “true, deeper” effects of the T+1 settlement cycle on the market.
As the industry continues to adapt, understanding these impacts will be crucial for optimizing processes and mitigating disruptions in the future.
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