Following the 2008 financial crisis, the European Commission (EC) enacted new regulations affecting the way National Central Securities Depositories (CSDs) conduct their business. As critical institutions in the securities settlement process, CSDs perform crucial post-trade settlement as well as record-keeping of securities accounts and their transactions. While the majority of European markets utilize a securities settlement period of transaction date plus three business days known as T+3 the EC, in an effort to improve the safety and efficiency of transaction settlements and synchronize all European markets, approved the change to a transaction date plus two business days or T+2 cycle. Supporters believe that this shortened settlement cycle will mitigate risk for all participants. However, as the deadline for implementing the new cycle protocol nears, many players have doubts about the wisdom of the shift and the ability of participants outside of Europe to comply in a timely manner.
Harmonization of Settlement Cycles
In 2009, the EC convened the Harmonization of Settlement Cycles Working Group to make recommendations for the standardization of securities settlement cycles. Although a cycle of transaction date plus one day T+1 was considered, it was rejected because of the continuing use of paper documentation and low levels of straight-through processing. T+2 was approved in part because it would harmonize with foreign exchange settlement periods.
The CSD regulation implementing T+2 is Central Securities Depositories Regulation 1, which provides for an effective date of January 1, 2015; however, notwithstanding this deadline, a number of markets chose the date of October 6, 2014, to make the switch. Critics have expressed concerns that mass switchovers on one day might cause chaos and failed trades costing millions of dollars. Soraya Belghazi, secretary general of the European Central Securities Depositories Association, said:
We are supportive of the move to T+2 and it has been under discussion for many years now. It will soon be mandated in regulation and the question has now changed from, should we do T+2 to, how are we going to implement T+2? This raises its own question as to whether or not it is a good idea to have a number of markets moving at the same time, thereby creating a big bang. Would it have been preferable to have managed the change in two or three waves?
Asian Firms Not Ready
A recent poll of Asian securities firms found that 58 percent are not prepared for the CSD change to T+2, and that one out of six firms has not even started the necessary process to switch to T+2. Even worse, the poll found that 19 percent of Asian firms were not even aware of the new pending settlement cycle regulation.
David draws on 20+ years’ experience in both legal practice and in business services delivery since his own call to the Bar in 1989. With several years in the startup environment, including as a co-founder in the legal tech space specifically, he brings a unique and timely perspective on the role of data, automation and artificial intelligence in the modern and efficient delivery of services for legal consumers. Having been both a corporate buyer of legal services and a services provider, he identifies the greater efficiency and value that can be achieved in legal operations for corporate buyers especially.
An attorney, David worked for law firms Pinsent Masons and Linklaters in London before moving to New York to join Credit Suisse. As CAO, he helped negotiate & execute the relocation of Credit Suisse into its new NYC global HQ. Subsequently, David directed major global outsourcing, shared sourcing, HR operations & process efficiency initiatives including the digitization of records, the global roll-out of PeopleSoft HRMS & Y2K. David has worked extensively in the UK, US, Philippines, India and China markets in the areas of data management, human resources and business process outsourcing.
Most recently, David has been successfully investing in and serving as an advisory board member of several legal services start-ups including a cloud-based solution for legal process automation and e-filing; and a technology solution for large-scale capture of court and other public data used for litigation analysis, among others.
David graduated from the University of Manchester with Honors in Law and Bar School (College of Legal Education) in London, and has been a member of Middle Temple since 1989. He is the founder and former Chairman of The Global Sourcing Council.
Member: Bar of England & Wales, ABA, NYCBA, ACC, DRI