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Europe T+2: Is Asia-Pacific Ready?

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7 April 2015
Neil Katkov

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 DTCC, 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.

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