VIDEO | Keeping good track of your securities inventory is a good start when it comes to prepping for a shortening of the standard settlement cycle from two days to one. At Thursday’s PostTrade 360° Amsterdam conference, BNP Paribas’ Alan Cameron looked into the balance of promises and possible worries ahead of North America’s move to its single-day settlement deadline.
The session was sponsored by BNP Paribas.
Reducing the settlement cycle time frame brings challenges in getting everything ready for settlement in time; the buyer must source the money and the seller must present the securities. But the trend towards shorter cycles is a bet that it is worth it, for the sake of reducing the counterparty exposures in the meantime. It could reduce direct operational costs, but also the more or less direct cost of tying up capital as margin collateral to cover the counterparty positions.
This said, while going from a two-day to a one-day notice could sound like a halving, the time for the actual human intervention with any issues will probably be squeezed be even more than those 50 percent. A misalignment with the foreign-exchange market is another challenge. Some in Europe could stay up late to get everything prepared on trade day ahead of settlement the day after, others might move operations to other time zones. In any case, the realisation is sinking in that operational consequences, for many stakeholders, will be large, and even inside America, many have a lot of adaptation still to get done.
Alan Cameron is Head of Client Line Advisory, Securities Services, BNP Paribas.
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