VIDEO | Faster is better, but only to a certain point, and for certain things. This was the conclusion of the session titled “Is faster better? Understanding T+1” at the PostTrade 360° Nordic 2024 conference. Alan Cameron of BNP Paribas took to the stage to outline the pros and cons of T+1, covering the transition from both the UK and EU perspective.

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“When we move from T+2 to T+1, we are not halving the amount of processing time,” Cameron pointed out. He cited a report by the Association for Financial Markets in Europe (AFME), which estimated that the reduction in processing time would be by about 85 per cent. This is likely to decrease settlement risk but increase operational risk – especially for those trading and settling in a different time zone from where they are located. “There’s just not enough time to get all these things done,” he said.

There have been predictions that T+1 will bring costs down, but Cameron is doubtful about that. “If you were to ask most people what their experiences is of going to T+1 in America… Most costs actually went up,” he countered. “With shorter settlement cycles, there’s a lot of pre-funding going on. This is probably exaggerated at the beginning… People tend to put a lot of money into accounts so that they are covered for fails.” He admitted, however, that this is expected to dwindle in the longer term.

Across the Atlantic

The UK plans to move to T+1 by the end of 2027, with slight flexibility allowed in the timeline for coordination with the EU if the bloc does something “reasonably soon”, Cameron revealed. The transition would initially apply only to on-exchange equities – OTCs, repos, physical securities and primary issuances are not in scope.

He praised one thing about the UK’s plan: preparations are targeted for completion in 2025, leaving “a nice bit of time” between putting things in place and the actual move.

Nevertheless, there is one crucial question the UK has yet to answer – that of leadership. In the US, the Depository Trust and Clearing Corporation (DTCC) stepped forward to lead the T+1 Transition. “Who is going to lead this (in the UK)?” asked Cameron. “Who is going to put the work into it that the DTCC did in America?”

The situation in the EU is slightly different. Because of the multiple markets and CSDs, the key issues are “going to be about timetabling and scheduling,” predicted Cameron. Unlike the US, which had “one CSD that came up with a schedule for when everything happened”, Europe’s many CSDs will have to interact with T2S, and consider CLS as well.

To conclude, Cameron addressed the question the session set out to answer: is faster better? “Well, yes it is,” he said. “But you should never go faster than you feel comfortable driving at.”

Speaker:
Alan Cameron, Head of Advisory FIC Client Line, BNP Paribas

• The consolidated PostTrade 360° Nordic conference, in Stockholm on 4–5 September 2024, came to host 1,200+ delegates and featured 70 sessions.
• Our coverage relating to the event is indexed here.
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