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Navigating the Challenges of T+1 Settlement and Trade Reconciliation

The impending transition to T+1 settlement of securities in the United States and Canada marks a significant evolution of these markets. The official adoption of the T+1 cycle for US securities on May 28, 2024, and Canadian securities on May 27,2024 will have far-reaching implications, both positive and negative.

Advantages of the abbreviated settlement cycle include diminished credit, market, liquidity, and counterparty risk, as well as reduced margin requirements and transaction costs. But the disadvantages include new complexities for the critical process of trade reconciliation.

Specifically, T+1 settlement increases the need for accuracy and timeliness in reconciliation. With a faster settlement cycle, asset managers and others must increase overall vigilance due to the amplified risk of errors and discrepancies that could lead to settlement failures. By the same token, it will be important to leverage automated trade-date reconciliations so teams can create more time and resources for high-priority manual intervention.

Challenges in Ensuring Accurate Data

Making sure reconciliations are accurate, however, is no easy task. Trade reconciliations are generated and managed by multiple organizations using a wide range of different systems and processes. All of this raises the risk of inconsistencies that require resolution before settlement can be completed.

To make the process as accurate as possible, firms need clean and precise standard settlement instructions (SSIs), which are instrumental for accurate automated trade reconciliations. These SSIs should be kept in sync at all times to prevent breaks. Firms will also need to enhance data integration across multiple sources to facilitate smooth and streamlined post-trade transactions.

Timely Resolution of Exceptions

Another big implication of the T+1 settlement framework is efficient and timely resolution of exceptions. This will require firms to establish effective communication and controls among all involved parties. It will be vital to streamline processes for resolving differences and ensure robust process controls in order to resolve the same number of exceptions within a much tighter window of opportunity.

Impact on Compliance and Regulation

The transition to T+1 settlement will have big implications for compliance and regulatory adherence. Effective reconciliation practices can help mitigate risks associated with meeting regulatory requirements and ensuring compliance in a more dynamic and fast-paced settlement landscape. Effective rule management will be essential for reducing the need for manual break resolution as well as ensuring regulatory compliance. Timely and accurate reporting will also be important in this regard.

Embracing T+1 Settlement with Enhanced Reconciliation

For all of these reasons, the transition to T+1 settlement underscores the need for more effective trade reconciliation. To meet the May deadline and thrive in the era of T+1 settlement, firms must prioritize the accuracy of trade data, refine processes for resolving discrepancies, and implement more robust controls. This will involve addressing current deficiencies in data, technology, and workflow.

Automation can help firms solve many of these issues simultaneously. Watch our webinar to see how IVP Reconciliation Solution can make the transition to T+1 settlement much easier or contact us to set up a live or online demo.

Reconciliation Solution

This reconciliation solution uses AI and ML to increase efficiency, accuracy, and flexibility., i It features “any-to-any” reconciliations, including bank reconciliation, and processes millions of transactions in minutes, allowing data reconciliation from a fund, fund admin, and counterparty in a single, N-way reconciliation process. Offered in conjunction with reconciliation as a service, the combined power of the solution and service ensure accuracy and efficiency in every report.

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