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U.S. Plays Catch-Up in Global T+2 Pushby Eugene GrygoMarket research firm Aite Group says the global push to shorten settlement cycles for securities transactions will challenge the buy side in the U.S. to revamp neglected back-office infrastructures.The now global push to shorten settlement cycles for securities transactions will profoundly challenge the buy side’s lack of investment over the years in automated back-office infrastructures, particularly at Tier-2 and Tier-3 firms, according to a new report from market research firm Aite Group.In fact, for all firms, with the move to settlement two days after a trade is executed, the report’s authors say the “biggest cost of a T+2 project will be in the review and analysis process” of automated systems.The review will require firms to examine settlement platforms, downstream systems and related processes and test whether these operations can be scaled to “increased volume and reduced time frames caused by the shortening of the settlement cycle,” Aite says.Recently, post-trade services utility the DTCC, the Securities Industry and Financial Markets Association (SIFMA) and major market participants have been ramping up the push to change the settlement of trades in the U.S. from the third day after a trade is executed, known as T+3, to two days, or T+2. If successful, the T+2 push will cause the U.S. to catch up to the rest of the world.JAPAN, EUROPE TAKE THE LEADThe report notes that Japan’s Financial Services Agency moved to T+2 settlement for the Japanese government bond market in April 2012. Europe is moving toward a single settlement system and working toward a certain level of harmonization for settlement market practices, including a move from T+3. “Aside from Germany, the majority of the countries in Europe operate on a T+3 basis and the CSD [Central Securities Depositories] Regulation (CSDR) is set to change this by directly mandating a move to T+2 or less for all European markets by 2015,” according to the report.Despite these efforts, buy-side firms represent “the biggest sticking point with regard to automation,” according to the Aite analysts Virginie O’Shea and Bill Butterfield, who served as authors of the report.A large global institutional brokerage firm told Aite Group that manual processes are currently involvedin 15 percent to 20 percent of its overall allocations, and this is no isolated incident.– The authors of “T+2 Settlement: Technology Challenges for the Day After Tomorrow”The authors of “T+2 Settlement: Technology Challenges for the Day After Tomorrow” point out that there are “high usage levels of fax, email, File Transfer Protocol (FTP) submission, and telephone communication for the process of confirming, allocating, and affirming trades” between buy- and sell-side firms. The T+2 push will most affect allocations, confirmations and affirmations, according to the report.“A large global institutional brokerage firm told Aite Group that manual processes are currently involved in 15 percent to 20 percent of its overall allocations, and this is no isolated incident,” according to the authors.Certain manual methods such as FTP transmission represent a larger proportion of flow for lower-tier firms than for larger institutional brokers, Aite says.“But all of the institutional brokers do have to support manual processes of some kind,” the report says. “The level of manual effort is particularly pronounced among Tier-3 institutional brokers, which rely heavily on email, telephone, and fax for the transmission of allocation, confirmation, and affirmation messages.”However, the large, top-tier firms that use Omgeo Central Trade Manager (CTM) and OASYS Domestic “must support the input of data from spreadsheets and fax machines,” according to the report.27VIRGINIE O’SHEAsenior analyst, Aite GroupContinued on Page 28FALL 2014 | FTF NEWS MAGAZINE