<div><i><span class="icg-blue-title" style="font-size:1rem;">Michele Pitts, Head of Securities Services, United States, and Head of US Custody Product Management</span></i></div><div><i><span class="icg-blue-title" style="font-size:1rem;">at Citi, sits down with our Head of Securities Services for Canada and senior representatives from DTCC</span></i></div><div><i><span class="icg-blue-title" style="font-size:1rem;">and BlackRock to discuss how financial institutions are bracing themselves for the roll-out of T+1.</span></i></div><div>&nbsp;</div><div>&nbsp;</div><div><div><span class="icg-blue-title" style="font-size:1.5rem;">Engineering market-wide efficiencies through T+1</span></div><div><br><span style="font-size:1rem;">By removing one day from the existing trade settlement window, market participants will most likely obtain major risk benefits, which in turn will expedite operational and cost synergies. As highlighted in “</span><a href="https://www.sifma.org/wp-content/uploads/2021/12/Accelerating-the-U.S.-Securities-Settlement-Cycle-to-T1-December-1-2021.pdf" target="_blank" rel="noopener"><span style="font-size:1rem;">Accelerating the US Securities Settlement Cycle to T+1</span></a><span style="font-size:1rem;">” — a shorter rolling settlement cycle will mean firms incur reduced systemic, operational and counterparty risk during the trade settlement process, something which could prove vitally important during bouts of volatility. This sentiment was also echoed in Citi’s</span><a href="http://citi.us/3BdSfNn" target="_blank" rel="noopener"><span style="font-size:1rem;"> Securities Services Evolution</span></a><span style="font-size:1rem;"> whitepaper where 44% of market participants surveyed regarded greater efficiency in the investment and trading process as being the most important benefit of faster settlements for their organisation.</span></div><div>&nbsp;</div><div><span style="font-size:1rem;">These scaled back risk exposures will mean trading counterparties are subject to lower margin requirements, facilitating cash optimisation.<sup>1 </sup>“</span><i><span style="font-size:1rem;">With one less day in the settlement cycle, there can be a more efficient deployment of capital and a reduction in risk, which is a benefit to our end clients,”</span></i><span style="font-size:1rem;"> says <strong>Lou Rosato, Director, Global Investment Operations at BlackRock.</strong></span></div><div><span style="font-size:1rem;">&nbsp;</span></div><div><span style="font-size:1rem;">T+1 adoption will also force intermediaries (i.e. custodians) to modernise parts of their antiquated technology infrastructure and legacy systems, in what could potentially negate many of the pain-points synonymous with today’s settlement activities — further crystallising some of the efficiency gains made already. </span><i><span style="font-size:1rem;">“A lot of post-trade processes are still reliant on manual intervention. Settlement compression will force the industry to strengthen and automate many of these processes,”</span></i><span style="font-size:1rem;"> says <strong>Martin Palivec, Head of Securities Services, Canada, Citi.</strong></span></div><div>&nbsp;</div><div><i><span style="font-size:1rem;">“Reporting is a key area where marked improvements are needed especially as we are facing greater pressure from clients about the timeliness and accuracy of reporting. Moving forward, we need to be able to inform clients about their trade statuses and instructions almost immediately, and this is something that cannot be handled manually,”</span></i><span style="font-size:1rem;"> continues <strong>Palivec</strong>.</span><br><br>&nbsp;</div><div>&nbsp;</div><div><div><span class="icg-blue-title" style="font-size:1.5rem;">Barriers to change</span></div><div><br><span style="font-size:1rem;">However, the implementation of T+1 is likely to cause logistical challenges. <strong>John Abel, Executive Director of Clearance and Settlement, Product Management at the DTCC</strong> notes that settlement compression will force members to examine existing trade allocation, affirmation and confirmation procedures.</span></div><div>&nbsp;</div><div><span style="font-size:1rem;">The Industry Steering Committee (ISC) is recommending that allocations take place no later than 7pm ET on trade date so that firms have adequate time to process affirmations by 9pm ET on T, having previously occurred at 1130 AM ET on T+1.<sup>2</sup></span></div><div>&nbsp;</div><div><i><span style="font-size:1rem;">“All firms involved in the institutional trade lifecycle will&nbsp; be impacted by the move to T+1. A lot must happen in the institutional trades flow to meet the new processing cutoffs. Allocations, affirmations and confirmations need to occur in a new compressed time-frame. This is an area that certainly warrants attention,”</span></i><span style="font-size:1rem;"> says <strong>Abel</strong>.</span></div><div>&nbsp;</div><div><span style="font-size:1rem;">The ISC warns a side-effect of T+0 could be a reduction in the number of trades which settle on time on the National Securities Clearing Corporation’s (NSCC) Continuous Net Settlement system.<sup>3</sup> Again, this could lead to a spike in trade settlement fails. To mitigate this risk, Pitts points out that greater investment into technology and automation&nbsp; will be vital to ensuring that these processes can all function seamlessly within the condensed time-frame.</span></div><div>&nbsp;</div><div><span style="font-size:1rem;">Other impediments also need redressing. For example, 31% of market participants surveyed in Citi’s </span><a href="http://citi.us/3BdSfNn"><span style="font-size:1rem;">Securities Services Evolution</span></a><span style="font-size:1rem;"> whitepaper viewed funding as potentially the greatest obstacle/challenge for any reduction in settlement, both in general and specifically for their own organisation.</span></div><div>&nbsp;</div><div><span style="font-size:1rem;">Abel also cautions that non-US investors operating in different time-zones could face challenges because of the shorter settlement cycle, citing FX management as an area raised by some in the industry. </span><i><span style="font-size:1rem;">“While removing a day from the FX cycle is challenging, many non-US investors already participate in other US markets that currently settle T+1, e.g., fixed income. Members should review their processes for supporting FX related to these transactions to see if they are scalable for US equity volumes,”</span></i><span style="font-size:1rem;"> says <strong>Abel</strong>.</span><br><br>&nbsp;</div><div><div>&nbsp;</div><div><span class="icg-blue-title" style="font-size:1.5rem;">Learning from other experiences</span></div><div><br><span style="font-size:1rem;">Outside of the US and Canada, India started phasing in T+1 in February 2022 for listed securities — beginning first with the smallest companies by market capitalisation. However, it appears North American markets are unlikely to adopt the&nbsp;incremental approach to T+1 being taken in India. </span><i><span style="font-size:1rem;">“India has phased in a T+1 settlement cycle, but this staggered implementation is not feasible in the North American markets,”</span></i><span style="font-size:1rem;"> highlights <strong>Pitts</strong>.</span></div><div>&nbsp;</div><div><i><span style="font-size:1rem;">“When we moved to T+2 from T+3, the industry discussed whether it should implement an incremental transition to T+2, e.g., by different asset class. This would have entailed moving equities to T+2 followed by fixed income, for example. At the end of the day, we concluded that most of these assets run on a single platform so carving out and identifying which securities would be T+2 versus T+3 created more risk than it was worth. As such, we are favouring a big bang approach to T+1,”</span></i><span style="font-size:1rem;"> explains <strong>Abel</strong>.</span></div><div>&nbsp;</div><div><span style="font-size:1rem;">Patience will also be essential if the move to T+1 is to be judged a success. Although the US industry has pencilled in March 2024 as T+1’s go live date, the DTCC together with industry bodies including the Securities Industry and Financial Markets Association (SIFMA) and Investment Company Institute (ICI) have urged the Securities and Exchange Commission (SEC) to delay the introduction of any settlement changes until Labour Day. </span><i><span style="font-size:1rem;">“This will enable the Canadian market to take advantage of the three-day weekend in the US to implement T+1. We are waiting for the SEC to come back to us with their comments,”</span></i><span style="font-size:1rem;"> says <strong>Abel</strong>.</span></div><div>&nbsp;</div><div><div><span style="font-size:1rem;">Ultimately, the industry needs to work together to ensure that T+1’s integration is straightforward. </span><i><span style="font-size:1rem;">“The industry needs to collaborate and facilitate interoperability of systems, whether it is FIX, SWIFT or any other proprietary systems,” </span></i><span style="font-size:1rem;">says <strong>Rosato</strong>.</span><br><br>&nbsp;</div><div>&nbsp;</div><div><span class="icg-blue-title" style="font-size:1.5rem;">Expediting settlements through innovation</span></div><div><br><span style="font-size:1rem;">With the US and Canada on the cusp of T+1, some believe the imposition of T+0 is an inevitable next step, highlighting it will lead to further improvements in capital optimisation and risk management. There is also a general acceptance that T+0 will only be possible if new disruptive technologies are assimilated into the post-trade operating model. </span><i><span style="font-size:1rem;">“It is hard to imagine T+0 working efficiently without DLT [distributed ledger technology]. In today’s existing set-up with all of the various rules and processes, it will be challenging for T+0 to be effective,”</span></i><span style="font-size:1rem;"> says <strong>Palivec</strong>.</span></div><div>&nbsp;</div><div><span style="font-size:1rem;">This is echoed in the ISC report, which notes T+0’s introduction would require a complete restructuring of the clearance and settlement model; revisions to regulatory frameworks and the implementation of real-time currency movements. The report continues that the costs of adopting new technologies would be disproportionately shouldered by smaller or medium sized firms who are reliant on legacy systems.<sup>4</sup></span></div><div>&nbsp;</div><div><span style="font-size:1rem;">However, market infrastructures are already scoping out ways to enhance their existing settlement processes. As part of its Project Ion initiative, the DTCC is, for instance, trialling DLT to support T+1 and T+0 settlement. In June 2022, the DTCC will make the Project Ion platform available to select clients — in parallel to its existing settlement system.&nbsp;</span></div><div>&nbsp;</div><div><span style="font-size:1rem;">The DTCC’s Abel takes a nuanced approach on the merits of T+0. </span><i><span style="font-size:1rem;">“A lot of people say that new technology is the answer to T+1 and T+0 but most of the impediments are not technology issues, but process problems which the industry has created for itself. Our feeling is that moving the entire industry to a standard T+0 settlement cycle will be challenging for the industry and that the industry would likely want to conduct a comprehensive cost benefit analysis on whether such a move is viable. That said, there is an opportunity in the US market for voluntary T+0 trading platforms to evolve and DTCC wants to ensure this activity can be supported,”</span></i><span style="font-size:1rem;"> says <strong>Abel</strong>.</span></div><div>&nbsp;</div><div>&nbsp;</div><div><div><span class="icg-blue-title" style="font-size:1.5rem;">Bring on 2024</span></div><div><br><span style="font-size:1rem;">Shortening the settlement cycle will yield a number of benefits for market participants, but it could also put strain on FX management together with the allocation, affirmation and confirmation processes. </span><i><span style="font-size:1rem;">“Even though T+1 is not yet live in the US or Canada, some are lobbying for the enactment of T+0. Again, this is easier said than done, especially as it would require a comprehensive overhaul of countless post-trade procedures,”</span></i><span style="font-size:1rem;"> says <strong>Pitts</strong>.</span></div><div>&nbsp;</div><div><span style="font-size:1rem;">Although 2024 may sound like a long way away, in reality it is not. A lot of high-level and significant operational changes need to be made in North America’s markets before T+1, let alone T+0 can be delivered.</span></div><div>&nbsp;</div><div>&nbsp;</div><div>&nbsp;</div><div>&nbsp;</div><div><sup>1 </sup><span style="font-size:0.875rem;">SIFMA, ICI, DTCC, Deloitte — December 1, 2021 — Accelerating the US Securities Settlement Cycle to T+1</span></div><div><div><sup>2 </sup><span style="font-size:0.875rem;">SIFMA, ICI, DTCC, Deloitte — December 1, 2021 — Accelerating the US Securities Settlement Cycle to T+1</span></div><div><sup>3</sup> <span style="font-size:0.875rem;">SIFMA, ICI, DTCC, Deloitte — December 1, 2021 — Accelerating the US Securities Settlement Cycle to T+1</span></div><div><sup>4</sup> <span style="font-size:0.875rem;">SIFMA, ICI, DTCC, Deloitte — December 1, 2021 — Accelerating the US Securities Settlement Cycle to T+1</span></div></div></div></div></div></div></div>

<p>Since the US and Canada announced that they will transition from a T+2 settlement cycle to T+1 in 2024, some within the industry are already busy petitioning for T+0 to be considered. While settlement compression could unlock a number of strategic and operational benefits for market participants, its implementation carries significant risks, which need to be overcome.</p>

Navigating The March Towards T+1

<div><span style="font-size: 2rem;">Industry preparations reveal a growing chasm</span></div>
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<div><span style="font-size: 1rem;">With the implementation date now finalized, market participant firms are actively working towards readiness though the levels of preparation among financial institutions appears to be quite varied. </span><span style="font-size: 1rem;">&ldquo;The move to a T+1 settlement cycle has been an ongoing industry effort for more than two years now. However, we still see people in different pockets, namely those who are very prepared and ahead of the game, versus those who are much further behind, and are not yet thinking about the changes,&rdquo; said </span><strong style="font-size: 1rem;">Michele Hillery, Global Manager of Equity Clearing and DTC Settlement Service at DTCC.</strong></div>
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<div><span style="font-size: 1rem;">For instance,&nbsp;</span><span style="font-size: 1rem;">the <a href="https://thevx.io/campaign/operationalising-t1/" data-link-source="tiny">ValueExchange &mdash; Operationalizing T+1 survey </a>found that 41% of the market still has not yet started planning for T+1. The survey further highlighted that institutional investors appear to be more advanced in their T+1 preparations compared to brokers and custodians<sup>3</sup>. </span></div>
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<div><span style="font-size: 1rem;">An institution&rsquo;s size is also a decisive factor determining their levels of T+1 planning. &ldquo;A large broker dealer for instance, is more likely to be compliant with the rules, having already embarked on the T+1 change journey. In contrast, a small broker dealer &mdash; which is still reliant on conducting their operations through fax &mdash; will probably have a bit more work to do. Budgetary constraints at smaller financial institutions may also be hampering their T+1 efforts,&rdquo; explained <strong>Michele Pitts, Head of NAM Custody Product Management Strategic Initiatives at Citi.</strong></span></div>
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<div><span style="font-size: 1rem;"><strong>Lou Rosato, Director of Global Investment Operations at BlackRock</strong>, shared that the $10 trillion asset manager is currently in the later stages of its T+1 planning. &ldquo;We have a deep understanding and alignment on the changes that need to happen and have identified key focus areas for a firmwide and unified project with our custodians and brokers. Our formal engagement and planning began in 2022 and it is now ramping up this year,&rdquo; noted Rosato.</span></div>
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<div><span style="font-size: 1rem;">Although major institutions with substantial operations in the US understand the full implications of the T+1 move, many outside of North America are still digesting the potential changes. </span><span style="font-size: 16px;">For instance, the<a href="https://thevx.io/campaign/operationalising-t1/" data-link-source="tiny"> ValueExchange study</a>&nbsp;found that not a single&nbsp;</span><span style="font-size: 16px;">Asia-Pacific based financial institution was executing their T+1&nbsp;</span><span style="font-size: 16px;">plans, nor had anyone in the region even developed a concrete&nbsp;</span><span style="font-size: 16px;">T+1 project funding request</span><sup>4</sup><span style="font-size: 16px;">. The study also revealed that&nbsp;</span><span style="font-size: 16px;">43% of Asia-Pacific based financial institutions were still in the&nbsp;</span><span style="font-size: 16px;">research and information gathering stages of their T+1 planning&nbsp;</span><span style="font-size: 16px;">efforts, versus 27% of those in Europe and 17% in the US</span><sup>5</sup><span style="font-size: 16px;">.</span></div>
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<div><span style="font-size: 1rem;">&ldquo;The most significant impact is likely to be felt at buy and sell-side firms in Asia and Europe. They will need to make substantial changes to their operating, treasury and client service models to support their client trading in a compressed settlement environment. They will experience the most significant impact, but in many respects are the least prepared and have the most work still to do,&rdquo; said <strong>Bryan Murphy, Global Head of Banks Sales, Securities Services, Citi.</strong></span></div>
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<div><span style="font-size: 1rem;">By shortening the settlement cycle from T+2 to T+1, market participants trading US equities will have much less time between trading and the start of the settlement cycle to perform post-trade processing<sup>6</sup>. As things currently stand under the T+2 model in the US, the trade allocation and affirmation process takes place at 1130AM Eastern Time (ET) on T+1. Following the introduction of T+1, trade allocations will be brought forward to 0700PM ET on trade date, with a 0900PM ET on trade date cut-off for affirmations.</span></div>
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<div><span style="font-size: 1rem;">The diagram also highlights the timing challenges facing financial institutions operating in Europe and Asia-Pacific as it relates to allocations, affirmations and securities lending transactions. As the diagram shows, implementation of T+1 will mean financial institutions will have 16.5 hours less time to process allocations; 14.5 hours less time to process affirmations; and 18 hours less time to process securities lending transactions.</span></div>
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<div><span style="font-size: 1rem;"><em><strong>What are some of the operational challenges market participants will be facing? And how can financial institutions navigate the T+1?&nbsp;</strong> </em></span><strong><span style="font-size: 1rem;">Click the full report to find out.&nbsp;</span></strong></div>
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<div><span style="font-size: 0.875rem;"><sup>1 </sup>Citi &ndash; Securities Services Evolution 2022</span></div>
<div><span style="font-size: 0.875rem;"><sup>2 </sup>DTCC &ndash; FAQs</span></div>
<div><span style="font-size: 0.875rem;"><sup>3 </sup>ValueExchange &ndash; Operationalizing T+1</span></div>
<div><span style="font-size: 0.875rem;"><sup>4 </sup>ValueExchange &ndash; Operationalizing T+1</span></div>
<div><span style="font-size: 0.875rem;"><sup>5 </sup>ValueExchange &ndash; Operationalizing T+1</span></div>
<div><span style="font-size: 0.875rem;"><sup>6 </sup>AFME &ndash; September 2022 &ndash; T+1 Settlement in Europe: Potential benefits and challenges</span></div>
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<p>In February 2023, the SEC confirmed that T+1 would go live on May 28, 2024. The implementation of T+1 could potentially be quite complicated, as it will force market participants into making material adjustments to their existing operating models and underlying technology systems. With T+1’s deadline rapidly approaching in the US, the window for preparations is getting narrower.</p>

T+1 — A race against time

<p><span class="icg-blue-title" style="font-size: 1.5rem;">Mapping the impact of T+1</span></p>
<p><span style="font-size: 1rem;">T+1 is expected to significantly reduce the amount of time organisations have to complete their post-trade processing. A recent Citi article &mdash; &ldquo;<a href="http://citi.us/3JrDlth%20" data-link-source="tiny">T+1: A Race against Time</a>&rdquo; &mdash; highlighted that firms operating in different time-zones to the US may need to start pre-funding their FX transactions when T+1 makes its debut. The requirement to pre-fund certain trades could be an issue for financial institutions in Asia, whose markets are anywhere between eight hours and 16 hours ahead of Eastern Standard Time (EST).</span></p>
<p><span style="font-size: 1rem;">Other activities that might face disruption when T+1 takes effect, include securities lending, corporate actions and the cross-border settlement of exchange traded funds, American Depository Receipts and dual listed securities. Furthermore, firms with operations in both the US and Canada should be especially vigilant in the early stages, as Canada is adopting T+1 a day ahead of the US.</span></p>
<p><span style="font-size: 1rem;">T+1 could also result in an increase in the number of trade fails leading to firms facing more frequent cash penalties or even higher Basel III risk weighted capital requirements. Although there are no clear-cut rules for penalties for trade fails in the US like there are in the EU, financial institutions may be hesitant about dealing with counterparties suffering from high fail rates.</span></p>
<p><span style="font-size: 1rem;">To date, however, industry preparations for T+1 can best be described as mixed. &ldquo;The tier one firms &mdash; especially in the US &mdash; appear to be well prepared to begin industry testing in Q3 2023. As we consider tier two and tier three firms, we are hearing that firms are less advanced in their preparedness. Not surprisingly, the levels of awareness and readiness in the US seem to be ahead of what we currently see in Europe and Asia,&rdquo; shared <span class="icg-blue-title"><strong>Michele Hillery, General Manager of Equity Clearing and DTC Settlement Service, Depository Trust &amp; Clearing Corporation (DTCC)</strong>.</span></span></p>
<p><span style="font-size: 1rem;">This is echoed in a recent survey conducted by The ValueExchange, which found 41% of global financial institutions had yet to begin their T+1 preparations, while just 46% said they expected to be ready for the changes. The ValueExchange study revealed that 61% of the buy-side are unprepared for T+1, a problem which appears to be especially acute among mid-tier and boutique firms.</span></p>
<p><span style="font-size: 1rem;">&ldquo;I think there are a lot of misconceptions circulating amongst our clients about whether they are impacted by T+1. Some non-US firms believe they are not affected because the T+1 transition is a SEC [Securities and Exchange Commission] rule, and as such they assume it does not apply to them. Others simply think their custodians will handle everything for them, but providers can only do so much,&rdquo; said <span class="icg-blue-title"><strong>Michele Pitts, Custody Product Head for NAM Strategic Initiatives, Securities Services, Citi.</strong></span></span></p>
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<p><span class="icg-blue-title" style="font-size: 1.5rem;">12 months and counting</span></p>
<p><span style="font-size: 1rem;">With less than 12 months until T+1 goes live, financial institutions have been urged to start preparing for the switchover. So what has to happen?</span></p>
<p><span style="font-size: 1rem;">Firstly, firms should conduct gap analysis to ascertain what they need to do ahead of the implementation date. &ldquo;From a project management office [PMO] perspective, there are several workstreams firms need to be focusing on, covering technology, regulation and communications,&rdquo; shared <span class="icg-blue-title"><strong>John Ferrara, Vice-President, Risk and Compliance at Fidelity Investments</strong></span>. &ldquo;Firms should be going through their documentation and making the appropriate language changes to reflect the T+1 move. At Fidelity, we have different business lines, focusing on institutional and retail clients, and how we communicate these changes will differ across our client segments.&rdquo;</span></p>
<p><span style="font-size: 1rem;">The T+1 move may require firms to make substantially more investment into technology and automation than they did during the adoption of T+2 in 2017. &ldquo;There are some technology changes which were not necessary back in 2017 but would be necessary now. For example, stock plan services were not impacted when the US shifted from T+3 to T+2, as TAs [transfer agents] were sending the shares in a timely manner. Now we are shifting to T+1, the TAs will need to make technology enhancements,&rdquo; said <span class="icg-blue-title"><strong>Ferrara</strong></span>.</span></p>
<p><span style="font-size: 1rem;">While some financial institutions are improving their in-house technology systems, others are leveraging existing industry solutions to assist with trade matching, affirmation, delivery and performance benchmarking ahead of T+1.</span></p>
<p><span style="font-size: 1rem;">Operational changes may need to be implemented to facilitate T+1 compliance as well. Some of the largest financial institutions currently adopt a so-called &ldquo;follow the sun&rdquo; model whereby their operations teams are located across multiple time-zones, enabling them to provide international clients with rolling 24 hour support for T+1. &ldquo;Some of our global clients are starting to open up East Coast offices to ease the T+1 operational burden,&rdquo; shared <span class="icg-blue-title"><strong>Pitts</strong></span>.</span></p>
<p><span style="font-size: 1rem;">These options may not however, be available to smaller or mid-sized firms. If financial institutions cannot reallocate resources to different time-zones, then they may have to adopt shift working patterns to meet their T+1 requirements. Nonetheless, there is growing concern among custodians and brokers about whether to provide out of hours support for those US clients, who will not be ready for T+1 next May. In particular, some providers are looking to put an end to the one-off accommodations they make for certain clients, especially if it forces their operations teams to perform workarounds.</span></p>
<p><span style="font-size: 1rem;">End to end testing ahead of T+1 will be critical too. &ldquo;DTCC will have its test environment ready for industry participants from the middle of August. While we do not anticipate that all market participants will begin testing in August, we expect a large number of firms to begin testing in Q3. A lot of firms are dependent on their service providers, so these institutions will likely be amongst the early wave of testers,&rdquo; said <span class="icg-blue-title"><strong>Hillery</strong></span>.</span></p>
<p><span style="font-size: 1rem;">Each of DTCC&rsquo;s tests will run over a two-week cycle, before being reset, enabling firms to conduct multiple dress rehearsals ahead of the T+1 deadline, including on public holidays. &ldquo;We do not expect firms to get everything right the first time. Therefore testing often, early and using different scenarios is very important,&rdquo; continued <span class="icg-blue-title"><strong>Hillery</strong></span>.</span></p>
<p><span style="font-size: 1rem;">Thorough testing will be critical if financial institutions are to have a smooth T+1 transition. By carefully documenting the testing process, firms will have useful reference points across multiple scenarios when the implementation date finally does arrive. While DTCC&rsquo;s testing environment is robust, it is limited to the functions offered by DTCC. &ldquo;DTCC handles an estimated 50% of the testing requirements related to the move to T+1. However, there is a lot that happens outside of DTCC&rsquo;s four walls that will also require comprehensive testing, including FX for firms with a global footprint, testing with service bureaus and vendors, and any internal operational workflows,&rdquo; said <span class="icg-blue-title"><strong>Hillery</strong></span>. Firms also should assess the resilience of their systems in all areas and perform adequate resiliency testing.</span></p>
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<p><span class="icg-blue-title" style="font-size: 1.5rem;">Turning a corner</span></p>
<p><span style="font-size: 1rem;">Although firms will have to recalibrate their operations and technology in advance of T+1, some of the biggest changes will be behavioural. &ldquo;We are looking at our operational processes and how they function in T+2, and assessing what activities need to be moved back to either earlier in the day, or T+1 or even trade date. We are then evaluating what behavioural changes &mdash; be it on the client or the vendor side &mdash; will need to be made. For instance, if a firm is not affirming transactions, then they need to do it now. The same applies if they are not sending trade files before 4pm. The good news is that behavioural changes can be made well ahead of T+1,&rdquo; said <span class="icg-blue-title"><strong>Ferrara</strong></span>.</span></p>
<p><span style="font-size: 1rem;">Along with behavioural changes, financial institutions will have to make substantive adjustments to their operations and technology practices if the switch to T+1 is to be frictionless. Moreover, regular testing will be essential if firms are to iron out errors in good time, and reduce the risks involved in the transition. Firms should take full advantage of DTCC&rsquo;s testing facilities when they open in the summer.</span></p>
<p><span style="font-size: 1rem;">With more markets &mdash; including a handful of LATAM countries, the UK and potentially the EU &mdash; contemplating shortening their settlement cycles over the next few years, there may still be a long road ahead on this T+1 journey.</span></p>
<p>&nbsp;</p>

<p>On 28 May, 2024, the US will be transitioning its T+2 equity settlement cycle to T+1, a milestone which will have a significant impact on the operating models of financial institutions all over the world. With T+1 now just 12 months away, what should the industry be doing to prepare for its implementation?</p>

T+1: The Countdown

<div><span style="font-size: 1rem;"><span style="  font-size: 24px; white-space: normal; background- float: none; display: inline;">Securities Services Evolution 2023 tracks the continuing evolution of our industry from being on the brink of change (in 2021), to seeing ongoing transformation (in 2022), to a year in which execution and realization have become core priorities in 2023. Not only is the industry preparing to remove an entire day from the settlement cycles of the world&rsquo;s largest capital market, but firms are also readying themselves for what they expect to be imminent changes to other settlement cycles, digital currency adoption and even atomic settlement in the next five years.</span> </span></div>
<div>&nbsp;</div>
<div>&nbsp;</div>
<div><span style="font-size: 1rem;">The central theme of this year&rsquo;s whitepaper revolves around the volume and diversity of change that market participants are facing around the world. This change centers on three broad areas:</span></div>
<div>&nbsp;</div>
<p><span style="font-size: 1rem;"><strong>FMI transformation:</strong> Significant change pressures being felt by financial market infrastructures across the world to manage a growth agenda during a phase of major technological transition (and removal of legacy platforms).</span></p>
<p><span style="font-size: 1rem;"><strong>Settlement transformation:</strong> Preparations by all profiles of global market participants for accelerated settlements in the US and Canada (transitioning in May 2024) and more to follow &mdash; giving rise to a new, real-time target operating model.</span></p>
<p><span style="font-size: 1rem;"><strong>Digital assets and DLT: </strong>Adoption and live deployment of digital assets (including crypto-currencies) as well as tokenization projects (digitizing traditional securities), building on the increased optionality that DLT offers each firm.</span></p>
<div>&nbsp;</div>
<div>
<h2><span class="icg-blue-title" style="font-size: 1.5rem;">The FMI agenda</span></h2>
<div><span style="font-size: 1rem;">Across the world, FMIs (most notably the Central Securities Depositories, or CSDs) are almost all facing the same two headline challenges: How to accelerate ransformation and innovation (in settlements and digital assets above all) while at the same time </span><span style="font-size: 1rem;">managing a transition away from ageing, legacy infrastructures. Across digitization, accelerated settlements and legacy transition, the ecosystem impacts of these pressures are now top-of-mind for many FMIs, as they shift their historical focus from managing (their own) platforms towards managing a wider ecosystem. From owning individual change to facilitating change across the industry.</span></div>
<div>&nbsp;</div>
<div><span style="font-size: 1rem;">While FMIs struggle with these challenges almost uniformly, almost regardless of location, there are important differences. In Latin America, we are about to see one of the most ambitious consolidation projects ever realized between Colombia, Peru and Chile. In Europe, the lasting benefits of clearing competition are now coming into question. In the digitization space, those in Asia and Latin America continue to innovate to drive financial market participation &mdash; while their peers in North America and Europe are shifting their focus towards the provision of common industry platforms. In Europe, Australia and other markets, corporate action </span><span style="font-size: 1rem;">standards continue to be a focus. </span></div>
<div>&nbsp;</div>
<div><span style="font-size: 1rem;">Faced with what seems to be an inevitable acceleration in settlement cycles (coming to the US, Canada and most likely Mexico in 2024), FMIs look set to have an increasingly complex operating agenda for years to come.</span></div>
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<div>
<h2><span class="icg-blue-title" style="font-size: 1.5rem;">Settlement transformation</span></h2>
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<div><img style="display: block; margin-left: auto; margin-right: auto;" src="/rcs/citigpa/storage/public/icpublic/GraphForWeb.PNG" alt="" width="576" height="502" /></div>
<div>
<div>&nbsp;</div>
<div><span style="font-size: 1rem;">89% of our survey respondents expect their local settlement cycles to shorten to T+0 or T+1 within the next five years. This means a vast amount of change ahead for an extended period. As firms across the world are discovering with their preparations to T+1 settlement cycles in the US and Canada next year, the impacts of accelerated settlement are profound and touch everything from trade fails to </span><span style="font-size: 1rem;">headcounts and treasury requirements. Next year&rsquo;s transition will impact up to eight different departments in each organization but in differing ways, depending most of all on where firms are located in the world. Those in Europe and Asia will be profoundly impacted by the treasury implications of T+1, while those in North America contend with regulatory requirements and securities lending liquidity.</span></div>
<div>&nbsp;</div>
<div><span style="font-size: 1rem;">With each market transition, the industry&rsquo;s best-practice sharpens a little. After India&rsquo;s T+1 move in early 2023,&nbsp; the path towards market readiness is clear: First get clients and counterparties engaged; then drive internal automation; and finally put in place resources and </span><span style="font-size: 1rem;">location strategies. Across all of these areas, the ability to depend on real-time communications, feeding a realtime view of inventory is increasingly critical. </span></div>
<div>&nbsp;</div>
<div><span style="font-size: 1rem;">With each market move increasing dislocation risks between different global settlement cycles, the&nbsp;likelihood of the T+1 domino effect continuing is high.&nbsp;</span></div>
<div>&nbsp;</div>
</div>
<h2><span class="icg-blue-title" style="font-size: 1.5rem;">DLT and digital assets&nbsp;</span></h2>
<div><span style="font-size: 1rem;">2023 sees 74% of our respondents engaging in distributed ledger technology (DLT) and digital asset initiatives (increased from 47% in 2022), in a clear sign that the DLT momentum continues to grow, despite negative news headlines around FTX and other initiatives. But while digital asset and crypto-currency activity continues (notably in Europe and Asia), building and preparation activity seems increasingly focused on DLT and tokenization, as the industry looks to leverage </span><span style="font-size: 1rem;">the choice and flexibility that the technology offers in operating processes and market rules.</span></div>
<div>&nbsp;</div>
<div><span style="font-size: 1rem;"><img style="display: block; margin-left: auto; margin-right: auto;" src="/rcs/citigpa/storage/public/icpublic/GraphForWeb2.PNG" alt="" width="470" height="427" /></span></div>
<div>&nbsp;</div>
<div><span style="font-size: 1rem;">As this increased activity moves into live environments, the dependencies that lie ahead are becoming more granular. In need of a currency leg for digitized transactions, the industry is increasingly bullish on their expectations of digital cash being operational within five years (through a range of Central Bank Digital Currencies (CBDCs) and more commercial mechanisms).<sup>1</sup> Organizationally, the focus is increasingly on those whose role it is to govern our infrastructures &mdash; not just regulators but also risk, compliance and finance teams. Technologically, there has also been a marked shift in who is expected to manage the burden of legacy platform connectivity &mdash; from the market participant to the provider. And lastly, but not least importantly, financial markets regulators across the globe are sharpening their guidelines and legislations to ensure continued oversight on market integrity and investor protection. </span></div>
<div>&nbsp;</div>
<div><span style="font-size: 1rem;">Looking ahead, the continued momentum of DLT and digital assets looks set to depend on two factors. First is the sell-side&rsquo;s ability to successfully engage the buyside, using a narrative that is built around the needs of a portfolio manager (more than an operations head today). Second is the ability to change industry processes to realize the benefits that DLT offers.</span></div>
<div>&nbsp;</div>
<div>&nbsp;</div>
<div><span style="font-size: 0.875rem;"><sup>1 </sup><a href="https://www.citigroup.com/global/insights/citigps/money-tokens-and-games" target="_blank" rel="noopener" data-link-source="tiny">https://www.citigroup.com/global/insights/citigps/money-tokens-and-games</a></span></div>
</div>
</div>

Disruption and transformation in financial markets infrastructures

<p>Securities Services Evolution 2023 tracks the continuing evolution of our industry from being on the brink of change (in 2021), to seeing ongoing transformation (in 2022), to a year in which execution and realization have become core priorities in 2023.</p>

Securities Services Evolution 2023

<p><span style="font-size: 16px;">Now in its fourth year, Citi's Securities Services Evolution whitepaper examines how T+1 has reshaped ecosystem boundaries for financial market infrastructures (FMIs) and the expected vs realized impact of the transition on markets globally. It also delves into digital asset commercial adoption rates across various regions worldwide and the evolving preferences towards digital cash options.</span></p>
<p><span style="font-size: 16px;">The central theme of this year&rsquo;s whitepaper is the transformation effect that new ecosystem dynamics are having on FMIs and market participants alike as they look to accelerate and automate much more than just their settlement processing. This transformation centers on three broad areas:</span></p>
<p><span style="font-size: 16px;"><strong>FMI transformation</strong></span></p>
<p><span style="font-size: 16px;">New pressures from a fast-evolving ecosystem are driving investments and activity among global FMIs as they accommodate new competitive pressures and regulatory requirements.</span></p>
<p><span style="font-size: 16px;"><strong>Settlement transformation</strong></span></p>
<p><span style="font-size: 16px;">The immediate impact of the transitions to T+1 in 2024 and their implications for global market participants, as they prepare for the continuing wave of accelerated settlement across future markets.</span></p>
<p><span style="font-size: 16px;"><strong>DLT and digital assets</strong></span></p>
<p><span style="font-size: 16px;">The practical choices that firms are making in 2024 on their path to commercializing DLT and digital assets in collateral, fund distribution and private markets, including the implications on network choices and digital cash.</span></p>
<p><span style="font-size: 16px;"><strong>Some notable key findings:</strong></span></p>
<ul>
<li style="font-size: 16px;"><span style="font-size: 16px;"><strong>Digital adoption is happening at different speeds:</strong> Asia Pacific and Europe are driving the commercialization of DLT and digital assets with 48% and 46% of respondents respectively actively pursuing initiatives.</span></li>
<li style="font-size: 16px;"><span style="font-size: 16px;"><strong>Private blockchain networks are preferred:</strong><span style="display: inline !important;"> 64% of sell-side respondents expect to use private networks (managed by banks, technology companies and FMIs) as the tokenization of assets gain momentum.</span></span></li>
<li style="font-size: 16px;"><span style="font-size: 16px;"><strong>Securities lending remains one of the most strongly impacted activities of T+1:</strong><span style="display: inline !important;"> 50% of respondents (compared to 33% from last year) saw the most impact on securities lending followed by funding requirements at 49%.</span></span></li>
<li style="font-size: 16px;"><span style="font-size: 16px;"><strong>Changing expectations of accelerated settlements:</strong><span style="display: inline !important;"> 40% expect real-time, atomic settlement within the next decade (versus only 13% last year), with Asia most bullish at 42%.</span></span></li>
</ul>
<p><span style="font-size: 16px;"><u><a href="https://www.citibank.com/icg/docs/Citi_Securities_Services_Evolution_2024.pdf" target="_blank" rel="noopener" data-link-source="tiny">Cli</a></u><u><a href="https://www.citibank.com/icg/docs/Citi_Securities_Services_Evolution_2024.pdf" target="_blank" rel="noopener" data-link-source="tiny">ck here to view</a><a href="https://www.citibank.com/icg/docs/Citi_Securities_Services_Evolution_2024.pdf" target="_blank" rel="noopener" data-link-source="tiny"> </a><a href="https://www.citibank.com/icg/docs/Citi_Securities_Services_Evolution_2024.pdf" target="_blank" rel="noopener" data-link-source="tiny">the</a><a href="https://www.citibank.com/icg/docs/Citi_Securities_Services_Evolution_2024.pdf" target="_blank" rel="noopener" data-link-source="tiny"> </a></u><u><a href="https://www.citibank.com/icg/docs/Citi_Securities_Services_Evolution_2024.pdf" target="_blank" rel="noopener" data-link-source="tiny">report in full.</a></u></span></p>

<p>Securities Services Evolution 2024 examines the transformation of new ecosystem dynamics and the effect on FMIs and market participants alike as they look to accelerate and automate much more than just their settlement processing.&nbsp;</p>

Securities Services Evolution 2024

<p>Implementing T+1 requires a holistic approach, focusing not just on individual system upgrades but on the entire ecosystem’s ability to operate faster, more accurately and with greater automation. It is a recalibration for financial institutions, transforming the entire trading lifecycle from execution to settlement and demanding proactive operational shifts across global markets.</p>

T+1: Transforming the Trading Lifecycle from End-to-End

<p>Insights on how and where T+1 is impacting the industry. From settlements to funding and FX, our experts share their insights on how to navigate this important market change.</p>

Shorter Settlement Cycles

Report

Download the full report on Beyond T+1: What’s Next?

The Continued Impact of Shortened Settlement Cycles

<p>Now that the US, Canada, Argentina, Peru and Mexico are living with T+1 - and as India has adopted a voluntary T+0 settlement cycle - some within the industry are now exploring whether settlement times could be squeezed further, either to T+0 instant or potentially even atomic.</p><p>There are several drivers behind this including digital transformation and rapid advancements in technology; and the next generation digital natives who expect their trades to settle in real time.</p><p>This article explores what’s next as appetite for faster settlements continue to grow.</p>

Beyond T+1: What’s Next?

Full Report

<p>The implementations of T+1 in China, India, Canada, the US, Mexico, Peru and Argentina have been major accomplishments that accounted for over USD59 trillion of market capitalization.<a href="#_ftn1"><sup>1</sup></a> One year on, attention is now shifting across the Atlantic towards T+1 transitions in the UK, European Union and Switzerland in October 2027.</p>

The upcoming transitions to T+1 settlements in the UK and Europe present a range of challenges and opportunities for Asia based investors, many of which we have seen before with the North American T+1 transition. As more markets move to optimize settlement flows in an accelerated settlement environment, the emphasis will increasingly shift toward automation across funding, foreign exchange, securities lending and core trade processing, making efficient technology solutions critical to ensuring operational resilience.”

<p>Now, in between these two major milestones, it would be easy for the industry in 2025 to believe that it has more than enough time to prepare for the gradual path of transitions that lie ahead. In actual fact, firms have far less time than they think to ready themselves for the globalization of T+1. This year is a critical juncture in the industry’s path towards readiness, particularly for investors based in Asia-Pacific.</p><p>Based on an industry poll as part of <a href="http://citi.us/4fQ8EMH" target="_blank">Citi’s Securities Services Evolution whitepaper</a> in the immediate aftermath of the North American T+1 transitions, 23% of firms’ project activity for the North America’s transition to T+1 was scheduled to be undertaken in 2025 or later (Figure 1) – with firms now beginning the complex and fundamental changes that they preferred to avoid during a major transition year (notably in cash management, forecasting, inventory management and securities lending). With flows and processes increasingly stable, 2025 is the year that investors into North America finish the job.&nbsp;</p><figure class="image image_resized" style="border-radius:10px;display:flex;overflow:hidden;width:fit-content;"><img style="aspect-ratio:911/304;" src="/rcs/citigpa/storage/public/timeframe-t-1-project-work-what-accelerated-settlements-mean-asia-based-firms-graphic.png" width="911" height="304" alt="A timeframe graph visualizing an industry poll as part of Citi’s Securities Services Evolution whitepaper in the immediate aftermath of the North American T+1 transitions. It shows how 23% of firms’ project activity for the North America’s transition to T+1 was scheduled to be undertaken in 2025 or later – with firms now beginning the complex and fundamental changes that they preferred to avoid during a major transition year."></figure><p><br>Looking ahead, 2025 is also the year when critical infrastructure investments must be undertaken by those holding and trading UK securities, given the requirement for all allocation and confirmation activity to be completed on a T+0 basis from December 2026 onwards.</p><p>T+1 is more than just a European concern. With market consultations and discussions ongoing in Australia, Brazil, Hong Kong, Japan and Singapore, the scope of those impacted by accelerated settlements – as well as the diversity of requirements triggered for these firms – is set to increase rapidly.</p><p>As Australia and New Zealand eye their own transitions in 2030 (essentially one year after Australia’s CHESS migration), the world is now likely faced with a five-year window in which to transition the majority of its investment flows globally. &nbsp;</p><p>This report provides a quick guide to the key challenges and risks that investors, broker/dealers and custodians in Asia-Pacific are likely to face as they move ever-closer to the next wave of global market settlement transitions. It is based on insights from ongoing market consultations across the world and on statistical data drawn from recent ValueExchange polls in February 2025 (including responses from 550+ firms globally).</p><p id="_ftn1"><span style="color:hsl(0,0%,60%);"><span style="font-size:0.875rem;">[1] ValueExchange research</span></span></p>

The Path to T+1: What Accelerated Settlements Mean for Asia-based Firms

<p>This report provides a quick guide to the key challenges and risks that investors, broker/dealers and custodians in Asia-Pacific are likely to face as the UK, European Union and Switzerland solidify their transition plans for October 2027.</p>

Download the PDF

<p>Implementing T+1 requires a holistic approach, focusing not just on individual system upgrades but on the entire ecosystem’s ability to operate faster, more accurately and with greater automation. It is a recalibration for financial institutions, transforming the entire trading lifecycle from execution to settlement and demanding proactive operational shifts across global markets.</p><p><span style="color:#255be3;font-size:18px;">Key Highlights:</span></p><ul style="list-style-type:disc;"><li><strong>Transformative Impact:</strong> The T+1 transition will fundamentally reshape the entire trading lifecycle, from trade execution and matching to funding, inventory management, and ultimately clearing and settlement, requiring a holistic operational recalibration.</li><li><strong>European Complexities: </strong>While the US transition was relatively smooth, Europe faces significant challenges due to its multitude of jurisdictional regimes, numerous Financial Market Infrastructures (FMIs), and connectivity gaps with the ECB's Target2Securities (T2S) platform.</li><li><strong>Automation and Data Quality are Key: </strong>Success in the T+1 environment hinges on improved data quality, timely confirmations, and extensive automation across processes to mitigate settlement fails and manage liquidity effectively.</li><li><strong>Strategic Preparation Required:</strong> Financial institutions must budget for T+1 implementations, develop technology solutions, understand and automate processes, and engage with counterparties for readiness, with testing and final operational readiness planned for 2027.</li></ul>

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T+1: Transforming the Trading Lifecycle from End-to-End

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Beyond T+1: What’s Next?

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