Could the T+1 Move Drive Up Op Risks?

The industry push to shorten the U.S. securities settlement cycle from trade date plus two days (T+2) to trade date plus one day (T+1) will end batch processing, drive operational costs down, but may cause an uptick in operational risk, says Brian Collings, CEO of Torstone Technology, in this installment of the FTF Exchange podcast series The T+1 move will be “quite significant” for most securities trading organizations, Collings says. “I think, in a phrase, that batch processing is dead. So I think everything really needs to move to real time, event driven just to ensure all those normal checks and balances are done in time,” he says. “One of the things that we believe is that the middle office is going to play a much more active role in reducing settlement failures.” The shorter settlement cycle, led by the Securities Industry and Financial Markets Association (SIFMA), the Investment Company Institute (ICI), and The Depository Trust & Clearing Corporation (DTCC) has recommended that American financial services firms and markets migrate to T+1 during the first or second quarter of 2024. While that effort will drive down costs, there may be trade-offs, Collings says. “I think it will certainly drive down costs. I think the capital costs for sure will get driven down and I think the exposure to market risk you’ve got a smaller window that will come down,” he says. “But I think operational risk has the potential to increase with such tight deadlines, and cost of failures if you don’t get those processes right and in place in time. So I’m not sure the IT costs will come down but I think, overall, cost to a business that should be coming down.” The podcast conversation also covered:  What Collings has learned during Torstone’s first decade in business;  The impacts of digital assets such as tokenized securities upon operations;  Torstone’s partnership with Digivault, a digital asset custody provider;  Torstone’s move into middle-office operations;  And Torstone’s product directions for 2022 and beyond?