Investment managers are preparing for significant operational changes ahead of the looming T+1 deadline Tuesday, May 28, 2024. This mandate poses many challenges for firms, including how firms adjust to new working schedules to manage new settlement timelines. Firms that plan, prepare, and test early are at an operational and compliance advantage.
To support clients, as they navigate this seismic shift, we recently hosted a virtual focus group to discuss transition plans and readiness. With over 170 participants, clients shared the various obstacles and concerns they are confronting, including automation, operations, and third-party reliance.
Automation & operations
Automation and operations will play a crucial role in successfully migrating to T+1. Firms that email or fax trade allocations will face more hurdles than those firms that employ a straight-through processing model with electronic connectivity to a post-trade communication network. During the conversation, several clients shared that they recall the challenge of shifting from T+3 to T+2 and have been investing in automating their workflows.
They recognize that while CTM integration, DTCC Trade Suite Alert, and SS&C Advent’s DTCC Interface may be a headache to setup, they offer transparency, automation, and operational efficiency.
Timestamps are crucial
The affirmation records have the trade date; however, to send trades to custodians intraday, the records must include timestamps to ensure they aren’t duplicating records. While several clients maintain copies of their affirmations for added compliance, under the amended rule, investment advisers must maintain each confirmation received, any allocation, as well as each affirmation sent or received, with both a date and timestamp.
Fortunately, SS&C Advent clients can timestamp with an SQL script. Additionally, our team is reviewing how timestamps can be surfaced within the reporting infrastructure. Firms that don't affirm their trades should contact their custodians for more information.
Third parties
It is a heavy lift to execute this transformational change, which is culminating in tightly coordinated testing efforts by all segments of the capital markets ecosystem: technology and service partners, broker-dealers, custodians, regulators, and investors.
Participants of the focus group acknowledged that custodian systems are designed for overnight processes and workflows, but they are feeling the squeeze with the new regulation. While trades go to CTM, some broker allocations do not make it on time, causing compliance concerns, as well as their ability to maintain the confirm/affirm process. Further, many clients feel this process will heighten the possibility of trade breaks and overdraft fees.
What’s next?
Trade settlement is a complex process that requires careful, timely attention to detail. Firms should ensure they have robust systems and partnerships to minimize exceptions and errors. Onboarding with DTCC and CTM are worth considering to streamline the process.
The T+1 requirements will favor firms that embrace digital solutions; it is imperative for these firms to use their partners and resources when testing and implementing their new T+1 processes.
Given the resounding feedback of this session, we plan to host another virtual focus group before T+1 goes into effect. For more information, read our guide: How to Plan & Prepare for T+1.
