Many industry insiders had already shared their two cents on one of the financial sector’s biggest anticipated changes this year – the shift to T+1 in the US, Canada, and Mexico this May. A recently published feature on Markets Media further presented a comprehensive overview of current attitudes on the topic. Gathering viewpoints from the senior executives of three institutions affected by the change, the article revealed some common sentiments: that a global shortening of the settlement cycle is inevitable, and that it will present the biggest challenge in FX.

Adam Watson, global head of commercial product for custody at BNY Mellon revealed that the bank has started pushing clients to “be ready for compressions in settlement cycles across global markets, and eventually, for real-time atomic settlement”. Gary Gensler, chair of the US Securities and Exchange Commission pointed out that T+1 is already not new in some jurisdictions, and “raises the question as to whether further shortening beyond T+1 may be appropriate”.

The challenge of FX

Adam Watson thinks that “affirmation rates show that the industry will largely get there for the May deadline”, but the same cannot be said for FX execution and settlement. Chris Gothard, partner at financial services firm Brown Brothers Harriman (BBH) acknowledged that FX settlement could be a challenge without a US desk for execution or operations. He revealed that many BBH clients are looking to outsource or find solutions for automating FX execution.

Advertisement

Those who cannot outsource or automate are looking at estimating their FX risks, he claimed, although this could lead to potential inaccuracies, which could further increase risks. Chris Gothard is also worried about the rise of FX spreads, warning that the potential increase in FX trading at the end of the trading day could contribute to liquidity challenges.