Creating a Strategy for T+1 Implementation, Testing & Migration

It’s been nearly three months since the SEC released its final ruling on settlement cycles for security transactions, changing the standard cycle from two-day (T+2) settlements to next-day (T+1) settlements.

Back in March 2023, I published a two-part series on implementing T+1, where I covered both the benefits and challenges of T+1 implementations for financial service providers.

As we enter into the second half of the second quarter of 2023, any financial service providers impacted by this new ruling should have their T+1 implementation strategy outlined — yet, new research has revealed that this may not be the case.

Today, I’m taking a closer look at the actual T+1 implementation process, including which key activities financial services businesses should have completed at this point in the implementation timeline and what challenges may be standing in their way.

T+1 Recap: What are the Key Considerations for T+1 Implementation?

Before diving into the current state of T+1 implementations, let’s quickly review what we know so far.

Full compliance with the new T+1 requirements is expected by May 28, 2024

The switch to T+1 settlement presents numerous advantages to the securities industry, including increased operational efficiency and improved cash management. It also pushes market participants to move away from manual processes — though this presents as much of a challenge as it does an advantage.

As for the hurdles that organizations must overcome to succeed in their T+1 migrations, the three biggest challenges are as follows:

Additionally, the T+1 implementation timeline overlaps with other regulatory changes — such as the launch of Swift’s ISO 20022 — that further complicate the matter.

Examining the T+1 Implementation Playbook: Key Activities & Timelines

In April 2023, the T+1 Securities Settlement Industry Implementation Playbook was published by the Securities Industry and Financial Markets Association (SIFMA) in partnership with the Depository Trust & Clearing Corporation (DTCC), the Investment Company Institute (ICI), and Deloitte.

This playbook outlines several important considerations for T+1 implementations including potential impacts, implementation activities, implementation timelines, dependencies, and risk impacts.

At this point in the T+1 adoption process, most businesses should be in the development phase of implementation. According to the playbook, key activities for market participants fall into three categories — implementation, testing, and migration.

Let’s take a look at some of the key tasks outlined within these categories:

T+1 Implementation Activities for Market Participants

Many implementation activities should already be underway.

The playbook’s roadmap for market participants outlines several activities that should have been completed within 2022 or early 2023, such as:

If your institution has not yet completed these activities, doing so with speed is a necessity to catch up with the current T+1 implementation timeline.

Assuming your organization has kept up, the following activities should currently be in progress, with the ideal completion dates landing before the end of Q2 of 2023:

• Developing a playbook and project charters to remediate identified gaps
• Coordinating changes with internal and external stakeholders
• Scheduling and executing changes for T+1 implementation, which includes four remedial activities:
  • Completing an initial gap assessment and budget estimate
  • Gathering business and technical requirements
  • Completing business-specific quality assurance (QA) and development testing
  • Completing business and operational readiness activities
• Assessing rule changes and regulatory reporting
• Ensuring regulatory compliance for T+1 settlement

The final implementation activity outlined in the playbook is the completion of internal testing, with the deadline for this testing leading right up to the official T+1 deadline in Q2 of 2024.

T+1 Testing & Migration Activities for Market Participants

Testing and migration are the final steps in the T+1 implementation process, with the timeline for these activities falling between the last quarter of 2023 and the second quarter of 2024.

These activities include:

• Coordinating with the DTCC, vendors, and service bureaus for industry testing preparation
• Conducting industry testing with the DTCC
• Migrating to T+1 settlement — aka, the “Go Live” moment for T+1 implementations
• Assessing post-migration activities

The final post-migration assessments should occur sometime in Q3 of 2024 following the Q2 2024 deadline after organizations have had some time to evaluate the impacts of T+1 settlement.

The Reality of T+1 Implementations: Why Organizations are Falling Behind

At this point in the playbook timeline, market participants should have already started their implementation strategies.

Yet, the reality of the matter is far less ideal. Juggling T+1 implementation activities with other operational responsibilities and regulatory hurdles can be challenging for financial service providers and organizations.

In a new DTCC-sponsored study with research conducted by ValueExchange, it is revealed that 41% of market participants have not even begun their T+1 preparations.

The study states that market participants are facing enterprise-wide challenges, with other key findings including:

1. The buy-side is struggling the most to keep up with T+1 implementations, with 61% of buy-side firms currently unprepared for the T+1 transition.
2. More than 50% of European and Asia-Pacific market participants have not defined a plan for managing foreign exchange and securities lending in response to the T+1 migration.
3. Just 46% of market participants are currently considered to be “on course” for the May 2024 T+1 implementation deadline.
4. Resourcing is proving to be one of the biggest challenges, with 66% of market participants struggling to resource their T+1 projects.

Of the market participants who have fallen behind in the T+1 implementation process, the study highlights that 31% of investors and 40% of brokers/custodians do not know if they can catch up within the remaining 12-month period before the deadline comes to fruition.

The study further reveals that universal banks represent the biggest unknown, with 50% of universal banks unsure of when they will be ready for T+1 settlement.

Here is a breakdown of what percentages of the other segments face this same uncertainty:

In terms of which challenges are driving this uncertainty and the potential impact of T+1 settlement, the study reveals that current reliance on manual tasks and provider/market structure challenges are the biggest hurdles for market participants to overcome.

Defining 3 Key Challenges Standing in the Way of T+1 Implementations

From the research we discussed above, we can define three key challenges that are currently inhibiting organizations from making progress in their T+1 strategies:

For organizations that have fallen behind, where do we go from here?

The solution to these challenges lies in strategic partnerships and collaborations. It is becoming increasingly clear that organizations that are facing major uncertainties need additional resourcing support to get their T+1 strategies up to speed and on course for the May 2024 deadline.

Exadel’s Strategic Resourcing is the Key Support Pillar You Need for T+1

If resourcing and automation are the main problems blocking your organization’s path to an on-time T+1 implementation, then finding a strategic partnership is the ideal solution.

At Exadel, we help financial service providers in all segments and sectors build more powerful solutions for regulatory compliance. Along with providing the resources and talent you need to automate your compliance strategy, Exadel also offers ongoing support to ensure your organization is always up to date and on course with all of the latest regulatory changes.

We are monitoring the T+1 migration timeline closely and can assist your organization in getting up to speed on your T+1 implementation process — regardless of how far along you are currently.

Get in touch with Exadel today to gain the advantage of expert support for your T+1 implementation.