T+1 may be monopolising headlines at the moment, but there is more happening in the world of securities services than just that. This is the observation of a comprehensive whitepaper by Citigroup on the securities services evolution. Insights from 12 financial markets infrastructures (FMIs) and 483 industry players from around the globe reveal that the industry is currently caught up in two interconnected challenges: accelerating transformation and managing a move away from legacy infrastructures.
Inevitable development
The paper describes the industry as being “faced with what seems to be an inevitable acceleration in settlement cycles”. Survey results support the statement, with 89 percent of respondents expecting their local settlement cycles to shorten to T+0 or T+1 within the next five years. Automating or standardising client communications, as well as upgrading or replacing technology platforms are the two topmost actions respondents are taking in preparation for T+1, with 69 percent of them indicating the former, and 64 percent indicating the latter.
Cash, funding and liquidity management are seen as the greatest obstacles to achieving T+1 globally – a result that has been consistent for the past three years from 2021. An overwhelming 98 percent of respondents believe that changes to cash clearing would help facilitate the reduction of the settlement cycle. 60 percent believe Ai or machine learning to be critical technology for a smooth transition.
Going digital
74 percent of respondents are now engaged in digital assets or DLT, a significant jump from the 47 percent of last year’s study. Custodians are the segment most involved, with 87 percent indicating “yes” to DLT engagement. Consequently, post-trade processing costs is considered one of the areas expected to be most highly impacted by a DLT-based market structure, sharing its top spot with liquidity.
Between tokenisation of public securities, private securities and alternative assets, public securities are perceived to have the fastest growth in the digital assets space, followed by private securities. 52 percent of respondents believe that central bank digital currency (CBDC) will be the most expected form of digital money used to support securities settlement.
The new CSDs
The report states that “the CSD mandate has transformed in the last decade”. It quotes Ivan Nicora, head of investor services at Euroclear, who says that the value of CSDs no longer lies in just their own services and their own infrastructures. Instead, it’s now about how CSDs add value by reinforcing and supporting the market ecosystem.
“CSDs have become ecosystem managers,” the report writes, “facilitating market progress and innovation by leveraging their connectivity at the heart of the securities industry”.