RIAs: Ready for T+1 Settlement Cycles? Prepare for T+0 Instead.

T+1 settlements present additional challenges, but to really stay ahead, RIAs should adopt T+0 processes and a T+0 mindset.

The trade settlement process is getting more complicated, as the SEC last year adopted a rule to shorten the trade settlement cycle from two business days (T+2) to one (T+1). The rule takes effect, starting May 28, 2024.

The reasoning makes sense. When done properly, faster settlement cycles benefit all market participants, allowing for the following:

  • more timely and accurate decision-making
  • enhanced compliance
  • risk mitigation
  • improved client service
  • greater market efficiency

But to make it happen, RIAs need to work extra hard, or at least work a lot smarter than before.

T+1 Brings Many Challenges

Despite the benefits, the transition to T+1 will not be easy for most RIAs:

  • working under tighter deadlines, increasing the risk of improperly executed steps
  • increased compliance demands and pressure
  • disruptions to workflows
  • higher costs
  • new training requirements for staff
  • adopting new systems to handle T+1 trade settlements
  • lack of global market uniformity for T+1 adoption

Trade Settlement Middle-Office Pressures

With shorter trade settlement cycles, investment operations teams must properly handle execution, clearance, confirms, and payment.

To do so will require assessments and changes for process documentation, training approaches, technology, and data management.

Without a solid plan and execution, middle-office costs and complexity will increase.

How RIAs Can Prepare for T+1 Settlements

1. Improve Communication

Make sure all team members are aware of the implications T+1 will bring to the organization, as well as changes in their responsibilities.

Additionally, coordinate with counterparties and service providers to ensure a smooth and seamless transition to the new protocols.

2. Update Documentation and Identity Areas of Risk

With accelerated reporting timelines and additional operations and compliance requirements, it is crucial to have a well-defined set of procedures.

With tight windows, RIAs cannot afford procedural mistakes. Find any “blind spots” or areas of weakness in the processes and make appropriate adjustments.

3. Retrain Staff

In addition to the communication and documentation, team members involved in trade settlement activities need to

Training may include the way staff communicates

4. Evaluate Existing Technology

Make sure all systems properly support T+1 settlement functions and quality data management. Timely and accurate recordings of transactions are of utmost importance.

If the current tech stack cannot support new requirements, begin searching for alternative platforms. Systems integration services providers like Empaxis help RIAs implement their software as well as migrate data from old to new platforms.

Additionally, automate processes wherever possible. Some processes are manual and routine, and programmed bots can handle those tasks faster and with fewer errors. Empaxis middle-office automation experts help in these areas too.

Go for T+0 Trade Settlement

Moving to T+1 is a big undertaking, but at Empaxis, we believe in T+0 trade settlement cycles.

RIAs will be doing the necessary prep for T+1 that, in our view, paves the way for T+0.

The only difference would be expedited timelines and leveraging a trade settlement outsourcing and automation provider like Empaxis to make it happen.

Trade Settlement Outsourcing and How Empaxis Helps RIAs with T+0  

One of the Empaxis five core pillars is “give more than expected.”

So when we see T+1, our reaction is to think T+0 and make a plan for it.

For 20 years, Empaxis has supported wealth and asset managers in the trade settlement cycle: confirmations, affirmations, matches, and reconciliation. Our globally staffed team works round the clock to ensure timely and accurate completion of trade settlement cycle processes.

One of the challenges with T+1 for most US-based RIAs will be finding traders and middle-office staff to remain on the job until late in the evening to ensure proper settlements.

The long hours and stress may cause burnout, high turnover, and potential trading errors that lead to unhappy clients.

The good thing for RIAs is that when they partner with Empaxis, they have access to global resources that process trade and custodian data immediately as it is available, handle trade settlements, and deliver reconciliation and performance reports that same day.

We also:

  • leverage best-in-class automation tools for trade settlement and related systems
  • help RIAs build and update their documentation
  • communicate with counterparties to ensure successful transactions
  • assess current tech stacks and workflows related to trade settlement, providing investment operations and technology consulting via EDIT (Empaxis Digital  Intelligent Transformation).

RIAs, Be Prepared Beyond T+1

The SEC’s new T+1 settlement cycle requirements, in the long run, will bring great benefit to market participants, including greater market efficiency, faster movements,

But in the present, buy-side firms will face challenges meeting those demands.

Certainly, there are measures to take, including more effective communication and coordination, new training, updated documentation, and better use of technology.

And Empaxis believes in all those methods, taking it a step further to not only meet but exceed expectations with T+0 trade settlement cycles.  

Our global team of middle-office experts and top-tier technology allow for expedited trade settlement, taking care of activities that place a ton of strain on RIAs if they do it all in house.

Regulatory demands for greater process efficiency and accountability will only increase as time goes on, and by optimizing trade settlement cycle processes beyond T+1, RIAs will stay one step ahead by partnering with Empaxis.

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