Last month, the US finalised rule changes to cut the settlement cycle to one business day in order to reduce risks in the clearance and settlement of securities.

A new report from Torstone and Firebrand Research, based on perspectives from the buy-side, sell-side, and service provider market participants in the UK, highlights concerns about the change.

Participants in the research agreed that post-trade securities operations would need to be as efficient and automated as possible in a world with shortened settlement cycles. Major concerns include the middle-office confirmation and allocation crunch, asset servicing changes, and disruptions in securities lending flows.

With the move to T+1 in North America, firms outside the region face pressures to coordinate across their global operations. As participants noted, some US firms have already made moves to accommodate time zone challenges. However mid-tier and smaller internationally-focused firms are concerned about losing business if they cannot quickly accommodate the changes.

Participants observed that the buy-side's engagement with and readiness for the T+1 move is vital. Many on the buy side still see the settlement cycle as a problem for their brokers and custodians to solve. However, the knock-on effects of greater inefficiency will ultimately erode the buy-side’s ability to respond to market conditions and satisfy end investors.

The cost of implementing the structural, operational, and technological changes required for a T+1 settlement cycle was a key concern among market participants. Sell-side firms may face uncomfortable choices between passing on the costs to buy-side clients and absorbing those direct and indirect costs.

Virginie O’Shea, CEO, Firebrand Research, says: “As the industry focuses on the move to T+1, the key pain points and themes are emerging for the UK market. Cost, time zones, and a lack of buy-side engagement are just some of the complex aspects that require significant collaboration across the industry."