T+1 Settlement: Costly Shift Without a Cause?

The U.S. prioritized reducing settlement fails domestically but ignored the knock-on costs for international investors, which have gone through the roof.” So says industry veteran Gary Wright, director at ISITC Europe CIC, in the latest episode of the FTF Exchange podcasts. In this podcast, hosts Maureen Lowe and Nick Holland speak with Wright who delves deep into the contentious shift to T+1 settlement in capital markets, questioning whether the benefits truly justify the costs. With candid insights and thought-provoking critiques, this conversation challenges the status quo and shines a light on the overlooked impacts of T+1 on investors, issuers, and market participants worldwide. Key Takeaways:  No Clear Business Case: Despite claims of efficiency, there’s been no cost-benefit analysis demonstrating that T+1 settlement provides net value. Wright argues the high costs outweigh the limited benefits.  Impact on International Investors: The shift has introduced significant financial burdens for international participants, requiring them to hold collateral in U.S. markets, increasing costs and reducing liquidity.  Legacy Systems Strained: T+1 imposes real-time processing requirements on outdated batch systems, which were never designed for such operations, creating inefficiencies and systemic vulnerabilities.  Regulatory Gaps and Divergences: While the SEC in the U.S. has aggressively pursued T+1, regulators in the UK and EU remain hesitant, further complicating global market alignment.  Lack of Innovation or Incentives: Firms are reluctant to invest in new technology or processes without a regulatory mandate or tangible incentives, leaving the market to grapple with outdated solutions. This episode is a must-listen for financial professionals, investors, and anyone curious about the realities behind T+1 settlement and its broader implications for global markets.