Saphyre: How US Trade is Reacting to T+1 Regulation

Last week, US trade settlement regulations shifted. Trade settlement has moved from a T+2 model – meaning that once a trade has been made, settlement must be completed within two days – to a T+1 model, in which settlement must be completed within 24 hours. 

This means back office operational work to complete a trade must be crunched in a matter of hours, and this is why Gabino Roche Jr, CEO and Co-founder at Saphyre says institutions should look to ensure they operate a T+0 operating model, so that they never risk falling foul of regulations and remain fully compliant.

Aim for T+0 to securely meet T+1 regulations 

While trading volumes under T+1 are currently low, it’s worth remembering that it is just the first week of trading under this model, and it was a holiday week in the US when the new regulation came into effect. 

“We anticipate the volumes are going to be much higher in the coming weeks,” says Gabino. Indeed, many large-scale institutions have made significant investments to add to the manpower to help meet the criteria for this new 24-hour model. 

The coming weeks will, however, prove the “true test to see if what FIs have put in place besides manpower augmentation, will help them scale the trading bottom they’re going to have”, adds Gabino.  

“There will be a difference in the coming weeks between institutions that have just augmented manpower and those that have implemented intelligent automated solutions, too, when it comes to effectively scaling trade and dealing with any exceptional issues that may occur.”

Leveraging automated intelligent solutions, aimed at operating to a T+0 model, can help organisations scale trading settlement and counter any exceptional issues that arise during this change period. Of course, intelligent solutions can help meet the trading crunch, which we explored further below. 

T+1: Automation needed for a worldwide trading standard 

T+1 is a transition that has already occurred in other markets, as Gabino expands: “India and China have already moved to T+1. They were ahead of the markets, but they're at the start of the financial day, whereas the US market is at the end of the financial day.”

Why is this important? “Even though T+1 is in India, Europe is still awake and the US is still awake, so there are more hours to settle trades,” Gabino continues. “When the US market closes at 4:00 PM New York time, you've got five hours to take care of that work, because 9:00 PM New York time is 9:00 AM in Singapore, Hong Kong and Tokyo.

“With T+1, you have to be ready for the next financial trading day in different markets. That’s where the crunch happens.”

The US is the leading global market, where the majority of investment happens. Therefore, T+1 in the US will result in a significant international impact.

For those institutions adding to the labour force to deal with the new trading crunch, it may not be enough to account for the added strain.

“What we're monitoring are the scenarios that were accounted for, how strenuous the labour was,” says Stephen Roche, President & Co-founder at Saphyre. 

“How much of the difficulty and labour could have been avoided, should an institution instead have automated digital technology to help them, such as that offered by Saphyre?”

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