Fintech
News from the securities finance sector | FinTech firms are skeptical of the SEC’s statement on T+1
Several FinTech companies raised potential concerns ahead of the implementation of T+1 in North America.
Alex Knight (pictured left), head of EMEA at Baton Systems, and James Pike (pictured right), interim CEO of Taskize, are concerned about the pressure a shorter liquidation cycle will place on the industry.
Knight says manual processing will struggle as working hours increase. He says: “It will be a tough ride with many stressed people working longer hours to meet these new tighter deadlines. Overall, the market has for too long relied on post-trade processes that require manual intervention.
“Although far from ideal from a cost and efficiency perspective, it worked when there was plenty of time to get things right, but now that we are moving towards much shorter timescales, the pressure is really on .”
Pike believes the industry is unprepared for T+1. He explains: “I think that the operators in the sector are partially ready. They have addressed the technological challenges of switching operational processes from T+2 to T+1, but have not fully prepared for the increased number of exceptions that may be thrown during the switch and therefore need to be better prepared regarding exception processing. “
These concerns come from the US Securities and Exchange Commission (SEC). making a statement which welcomes the transition which will take effect in the United States on May 28.
In the statement, SEC Chairman Gary Gensler said: “For everyday investors who sell their stocks on Monday, shortening the liquidation cycle will allow them to get their money on Tuesday.
“Reducing the settlement cycle will also help the markets because time is money and time is risk. It will make our market more resilient, timely and orderly. Additionally, it addresses one of four areas that the staff recommended that the Commission address in response to the 2021 GameStop stock events.
In 2017, the SEC successfully shortened the settlement cycle from T+3 to T+2. The agency admits that the move to T+1 could create “a short-term increase in settlement failures and challenges for a small segment of market participants.”