The shift to T+1 settlement in the US has not reduced foreign exchange (FX) settlement values or volumes through CLS, the multi-currency settlement system. June 2024 saw a record average daily settlement value of US$7.8 trillion for CLS.

Initial data suggests the FX market has adapted smoothly to the shorter settlement cycle without moving towards bilateral settlements. CLS says in a press release it observed an increase in fund-related submissions to CLSSettlement starting at 14:00 CET, peaking between 22:00 and 23:00 CET, and then declining after 23:00 CET. This early increase is greater than the subsequent decline, indicating no net loss in submission values.

While CLS did not definitively link this growth to the T+1 transition, it notes potential behavioural changes in asset management and fund sectors. For instance, the increase in submissions from 14:00 CET may reflect funds executing FX components of security trades before trade confirmation. The late evening rise could be due to improved process automation and global custodians’ support, helping funds meet the 00:00 CET initial pay-in schedule.

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Concerns

Concerns had arisen about the T+1 transition causing operational difficulties for asset managers. CLS had confirmed it would not change its settlement cut-off time, despite buy-side requests. This decision, supported by member consultations, avoided significant development time that larger members estimated could take nine to twelve months.

A CLS survey shows over 40 per cent of settlement members, representing about 50 per cent of CLS Settlement’s US$6.5 trillion average daily value, might need system development for any cut-off changes. Despite these concerns, CLS’s decision to maintain its cut-off time has been effective, with the industry adapting well to the T+1 cycle.