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White Paper

T+2: The Catalyst for Change

Company: Trax

Trax case study

Category: Compliance

Published: 18 August 2014

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Overview

With the 6 October 2014 deadline for T+2 fast approaching, the industry needs to prepare. It is more than 20 years since the Industry User Group (IUG) oversaw the birth of the first vendor electronic trade confirmation (ETC) platforms. Those platforms (Thomson - OASYS Global, London Stock Exchange - SEQUAL and ISMA - TRAX) represented the genesis or, put another way, the essential building blocks for the industry to strive toward Same Day Affirmation of trades. But why, more than 20 years later, are firms still failing to achieve high rates of trade confirmation, particularly in non-equity asset classes?

Chris Smith, head of post-trade at Trax said: "Over the years, the way that financial markets operate has changed, yet back-office technology has not kept pace. With the advent of T+2 due to hit most of the European markets on 6th October 2014, it is time for the post-trade world to look again at their processes for confirming and agreeing trade details. The operational and balance sheet risk, as well as the associated impact on reputation, for failed trades means that doing nothing to prepare for T+2 is not an option. The Trax Match system can help meet the demands of shortened settlement cycles by allowing market participants to efficiently match the economics and settlement instructions of a trade in near real-time."

The scale of the move to T+2 settlement is unprecedented. There is no single co-ordinating body, and markets and their supporting infrastructures have changed significantly since settlement cycles were reduced to T+3. Transaction numbers are much higher and operational processing models have become increasingly aligned functionally.

The reduction in standard settlement cycles from T+3 to T+2 will be the catalyst that drives the industry to achieve same day and near real-time trade agreement and settlement instruction. The costs and risks of continuing with current industry operating models will be too high.

The Trax white paper analyses ways in which the industry can be ready for this important change and discusses why the move to T+2 is more significant than previous reductions in settlement times.

 

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