APAC and T+1 – how the conversation is going

Plenty has been said and written about T+1 transition in the West; but now that the US has successfully transitioned, and the UK and EU have given a concrete timeline for doing the same, attention is turning towards the East. The fragmentation of markets within the APAC region and the complexity of achieving alignment with a whole different time zone has the industry mulling over the best way forward.

T+1 transition in APAC is no longer a matter of when, but how; just as the US’ transition to T+1 propelled the upcoming transition in the UK and EU, so, too, will the UK and EU’s transition catalyse APAC’s.

Broadridge observed in an article published on its Insights page that T+1 conversations are already accelerating across the region. The Hong Kong Exchanges and Clearing (HKEX) published its Accelerated Settlement Discussion paper in July this year, while the Australian Securities Exchange (ASX) released its Key Considerations paper in October last year. There is talk in almost every market – but those talks are progressing at very different paces.

When the going gets tough

In a joint article published on BNP Paribas, Mark Wootton, the bank’s co-head of the Financial Intermediaries and Corporates Client Line in APAC and Alan Cameron, head of advisory, Financial Intermediaries and Corporates Client Line, identified a few key challenges for APAC investors.

The time zone issue was brought up, of course – “the time-zone differences between APAC and Europe will create funding gaps and end-of-day challenges for broker/dealers managing their net funding positions. Geographic and time differences also significantly shorten the window for trade allocation and confirmation”.

The Trade has also added its voice to the discussion. In an article published earlier this year, Rob Arnott, head of brokerage, APAC at Northern Trust expressed his concerns about Australasia’s transition. “For any AU/NZ clients currently doing processes early on T+1 local time to cover US market close, (it) will be pretty much impossible to meet the UK/EU timelines which are two to three hours earlier, which further promotes the need for either a global footprint, or to outsource to firms who have one and can meet regional cutoffs.” 

Differences in play

APAC markets are fragmented, but so are Europe’s. This poses a double whammy of a challenge. “The lack of consistency on market rules and guidelines in Europe can potentially hinder Asia-based firms’ ability to make meaningful preparations for the T+1 transition,” wrote Wootton and Cameron.

In a recent interview with The Asset, Val Wotton, managing director and global head of equities solutions at the Depository Trust and Clearing Corporation (DTCC) backed this point. “This fragmentation creates potential discrepancies between a firm’s chosen CSD or international central securities depository (ICSD) and the records maintained by brokers and custodians as a venue for trade settlement,” he said. “To mitigate trade exceptions and settlement fails, Asian firms should adopt standardised data formats for critical trade details – such as place of settlement (PSET) –and ensure this information is captured and matched early in the trade lifecycle via an integrated platform. This is especially critical for Asian firms engaging with multiple European counterparties across time zones.”

Nevertheless, “Asian firms should approach Europe’s transition as a unified jurisdictional initiative, rather than a series of isolated changes… Despite regional differences, workflows across EU and UK markets share enough commonality to support a consolidated strategy”.

Wootton and Cameron mentioned another challenge that is often brought up in discussions on T+1 alignment – FX. “There is a potential for increased fails if cash and securities are not pre-positioned. The FX market is still T+2, which means it will have a different settlement time to the listed securities market.”

Duncan Carpenter, director of product management at financial services technology firm Pirum told The Trade: “If you’re selling against different (currencies), you’ve now got different time frames in Asia versus your European assets, for example, you’ll therefore have a part of your trade on a T+1 basis, and a part on a T+2 basis.”

All about timing

Broadridge’s article suggested best practices for a smooth transition to T+1 in APAC. It is “widely acknowledged that North American markets needed 30 months to prepare for and execute T+1”, but APAC investors should not assume they have the same timeline. Interim deadlines should not be overlooked – and this includes the UK’s target to have critical post-trade processes on T+0 by December 2026. “Few firms are tracking this interim deadline, with 28 per cent likely to miss it,” Broadridge claimed.

Midnight, or 23:59 on T+0 is the cut-off time for settlement instructions under EU’s T+1 deadline. For the UK, it’s 05:59 on T+1. According to the EU T+1 Industry Committee, the difference in deadlines is due to the different settlement infrastructures used – the EU is mostly on TARGET2-Securities (T2S), while the UK is on the Certificateless Registry for Electronic Share Transfer (CREST). Broadridge quoted a ValueExchange research that revealed Asian firms will need to accelerate about 40 per cent of their settlement instructions to meet the UK cut-off time.

“Asian firms should immediately begin shifting as much trade processing (allocations, confirmations, funding, and settlement instruction generation) into T+0, leaving only exception handling for T+1. Same-day FX and funding may soon become essential for local markets as well – start building capabilities now,” Broadridge advised.

Cross-border cooperation

In the same article mentioned above, The Trade claimed that the US’ move to T+1 was based on an egocentric mandate, with Gary Gensler, ex-chair of the US Securities and Exchange Commission (SEC) saying that his focus was on the 300 million Americans. Unlike the US, the EU’s transition focuses on inclusivity.

The article quoted Adam Conn, head of trading at investment management company Baillie Gifford: “We also must look beyond (Europe) and view things globally… Taskforces in the UK and across Europe will want to make sure that markets remain accessible.” Andrew Douglas, chair of The UK’s Accelerated Settlement Taskforce (AST) confirmed to The Trade that the decision to set the UK’s cut-off time for settlement instructions at 05:59 on T+1 was made in consideration of investors outside the UK time zone.

At the ready

Some insiders point out that APAC teams are already used to time zone differences and have procedures in place to avoid settlement delays. In a statement shared with The Trade, Jon Ford, head of fixed income business development at Pirum, said that some Asian firms put up collateral a day early to receive collateral back when the western markets open.

While helpful, such precautions might no longer be foolproof when the EU is on T+1. Wotton told The Asset: “The 12– to-14-hour time difference between the US and Asia allows Asian firms to resolve issues during their morning hours. However, with the smaller time difference between the UK/EU and Asia, that advantage disappears.”

He shared some advice: “Operational readiness hinges on automation. Asian firms must automate trade capture, allocation, confirmation and instruction processes. They must also ensure that these steps are completed on trade date (T+0), as recommended by the EU T+1 Industry Committee and the UK AST. Attention to data standardisation and enrichment is also required. Standard settlement instruction (SSI) and PSET data must be accurate and shared early in the trade lifecycle.”