Europe T+2: Is Asia-Pacific Ready?

by Neil Katkov, PhD, April 8, 2015
Regulation
Asia-Pacific, EMEA

Abstract

European markets have moved from a T+3 to a T+2 settlement cycle. Crucially, market participants in Asia-Pacific trading on European venues are also required to adhere to the shorter settlement cycle, or face fines for failed trades.

Europe T+2 settlement is the latest initiative by regulators to create a more efficient trading structure in the fragmented European markets. In the report Europe T+2: Is Asia-Pacific Ready?, a survey-based study by Celent sponsored by Omgeo, Celent examines the impact this is having on brokers and investors trading in Asia-Pacific.

Celent surveyed over 30 investment managers, broker/dealers, and custodians in Asia-Pacific on their readiness for Europe T+2. The survey found that most firms had started retooling processes and technology to enable T+2 settlement for European issues. Even some firms with STP-enabled middle office operations and trading in T+2 markets such as Germany needed to enhance their technology and processes to support the EU T+2 regime.

The report also examines how the time zone difference with Europe puts market participants in Asia-Pacific on a considerably tighter post-trade schedule than locations in Europe. For firms with any significant level of trading, automating post-trade processes will be essential.

“In a sense, Europe T+2 is a dress rehearsal for the day when T+2 becomes the global norm for securities settlement,” says Neil Katkov, PhD, senior vice president, Asia, and author of the report. “How Asia-Pacific responds indicates the extent to which the region’s internationally focused firms have efficient, flexible processes and technology that are ready for the operational challenges ahead.”

The report looks at how Europe T+2 is affecting Asia-Pacific firms’ technology, operations, and trading strategies, provides information on IT spending levels for system upgrades for the Europe T+2 regime, and offers suggestions for coping with the challenges Asia-Pacific firms now face when trading in the European equities markets.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

 

Key Research Questions

1

Background

3

An Introduction to Europe T+2 Settlement

4

 

Goals of the T+2 Settlement Cycle in Europe

4

 

Compliance and Penalties

5

Impact on Market Participants in Asia-Pacific

6

 

What, Where, and Who Is Affected

12

 

Asset Classes

12

 

Trading Venues

12

 

Market Participants

12

Impact on Post-Trade Cycles

14

 

Time Zone Challenges

14

Conclusion: Is Asia-Pacific Ready for T+2?

17

 

Challenges

17

 

Solutions

18

Appendix: Survey Background

19

Leveraging Celent’s Expertise

20

 

Support for Financial Institutions

20

 

Support for Vendors

20

Related Celent Research

21

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