Upcoming U.S. trade settlement changes are generating significant concern among Asia-Pacific asset management firms. The primary worry is these companies might lack the resources to handle the shift from a two-day cycle to T+1, set for May 27th. Potential outcomes could consist of system failures or increased trade failure risk, posing a challenge for firms without adequate systems.
The current system affords entities approximately 30 hours to match, clear, and finalize U.S.-listed trades. But, the T+1 settlement will reduce this buffer by an entire day, pressurizing organizations to operate within a considerably narrower timeframe. Such a shift could offer a chance to optimize operations, but it also necessitates refined procedures and agile systems to meet increased demands. Non-compliance could lead to significant reputational and financial losses.’
For Hong Kong-based asset managers, the new protocol means a constricted daily timeframe. The interval between New York’s market closure and the trade allotment deadline will be a mere three hours. Companies may have to employ manual strategies, like incorporating technical solutions or expanding operational staff. Yet, this increases the risk of human error, making robust automated systems essential.
Additionally, the T+1 settlement might result in U.S. trade funds shortage. Asset managers generally use proceeds from one market’s security sales to fund purchases in another. However, expedited U.S. market settlement may result in discrepancies with other markets because of time zone differences, which could cause increased global market volatility.
Asian asset managers could face increased risks and costs due to the settlement time mismatch. They may be compelled to consider options like securing short-term financing, delay settlement agreements, or even resort to futures contracts to hedge against the settlement gap. This situation underlines the urgent need for these firms to be well-prepared, anticipating possible challenges, and devising contingency strategies for a smooth transition.
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