WFE publishes guidance on migration to T+1
The World Federation of Exchanges (WFE), the global industry association for exchanges and central counterparties (CCPs), has published industry-wide guidance on the complex mix of operational, regulatory, and strategic considerations for shortening securities settlement cycles.
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The paper draws on lessons learned from recent transitions in markets including India, the United States, Canada, and Latin America, and offers a roadmap for jurisdictions seeking to move safely and efficiently from T+2 to T+1 settlement.
In publishing the guidance, the WFE emphasises the importance of thorough industry collaboration, operational readiness, and technological investment to ensure successful implementation and warns against premature moves beyond T+1 without clear justification and market preparedness.
The guidance identifies seven key imperatives for a successful transition to T+1:
Operational Preparedness: Firms that invest early in technology, automation, and testing face fewer disruptions during transition. Proactive preparation is essential.
Collaboration: Close coordination between regulators and industry participants is vital. Standardised protocols and open communication help ensure consistent timelines and processes, while ongoing communication between stakeholders ensures rapid resolution of emerging issues.
Technology & Automation: Straight-Through Processing and real-time data reconciliation are critical enablers of accelerated settlement, removing bottlenecks caused by manual interventions.
Liquidity Management: T+1 impacts cash and securities availability. Enhanced cash forecasting and continuous monitoring are needed to avoid settlement failures.
Regulatory Alignment: Clear guidance, realistic timelines, and regulatory flexibility combined with phased rollouts and pilot programs, have proven successful in allowing firms to adapt progressively, while clear protocols for handling exceptions and fails helps to minimise systemic risks during the transition period.
Cost Considerations: Upgrading infrastructure carries significant costs, especially for smaller firms and CCPs. Careful planning is needed to ensure benefits outweigh expenses, and rushed transitions will be more expensive than methodical ones, as well as being less risky in terms of project completion.
Global Implications: Misaligned settlement cycles and time zone differences create challenges for cross-border trades, related FX transactions, and instruments like ETFs.
Richard Metcalfe, Head of Regulatory Affairs at the WFE, commented, 'We urge regulators and market participants to engage in structured, phased transitions supported by clear roadmaps, robust cost-benefit analysis, and inclusive governance structures.'
Nandini Sukumar, CEO of the WFE, commented, 'It is vital to look at T+1 as a cost-benefit question. The powerful effect of multilateral netting, which can only be achieved through centralised market infrastructure, has clear advantages. So, while shortening the settlement cycle can reduce margin requirements, there is a balance to be struck and, as our paper makes clear, the costs of going further would include compromising market liquidity.'
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