CLS has issued an update on the potential change to CLSSettlement timelines following the move to T+1 securities settlement.
CLS will not make any operational changes to CLSSettlement ahead of the expected T+1 implementation date of May 2024. While CLS will not move the 00.00 CET deadline for the initial pay-in schedule (IPIS) calculation, settlement members can still submit their trades to CLSSettlement up to 06:30 CET for settlement that day.
As well as being subject to any required approvals, any changes to the existing CLSSettlement service would require a comprehensive risk assessment supported by detailed modelling and analysis and, crucially, require the whole ecosystem to make changes to their systems and processes.
CLS’s settlement member survey to assess the feasibility of extending the 00:00 CET IPIS deadline showed that over 40% of settlement members, representing approximately 50% of CLSSettlement’s average daily value (ADV), reported that system development may be necessary to accommodate a move in CLS’s initial pay-in schedule, with considerable time to implement.
An analysis of CLS transaction data to assess how the move to T+1 could affect asset managers and funds indicated that the overall impact to CLSSettlement may be limited. A value equivalent to approximately 1% of the CLSSettlement ADV is executed on a T+1 basis, comprising volumes where one side is USD and a fund is party to the trade.
Asset manager outreach indicated that 40-50% of the 1% of CLSSettlement ADV could be impacted by the move to T+1 and could settle outside of CLS. More than 50% of asset manager respondents said the majority of their risk can still be mitigated through CLS even without any changes to custodian cut-offs or CLS deadlines, while 35% have not yet decided how to respond to the impact of T+1.
CLS said:
“CLS will monitor the impact of the transition to T+1 post-implementation in May 2024, and will update stakeholders at the end of June and September. We will continue to work closely with our settlement members, asset managers and the wider ecosystem to explore possible solutions to address any challenges that may arise from the transition to T+1, while ensuring that the stability of the FX ecosystem remains our top priority.
In the meantime, execution and operational efficiency across the asset manager and fund community will remain paramount. For same-day instructions that cannot settle within CLS due to custodian cut-off times CLSNet, CLS’s automated and standardized bilateral netting calculation service, can help to reduce funding obligations and the number of payments required by calculating net payment obligations that facilitate payment netting”.
