European managers relocate staff to meet impending T+1 rules

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European asset managers are moving staff to the US ahead of new settlement rules, while others may change the working hours of some roles.

The Securities and Exchange Commission is reducing the settlement time for US equities and corporate bonds from two days, referred to in the industry as T+2, to one day, T+1.

Timezone issues mean the rules will be even harder to meet for firms outside the US.

Under the changes, firms must allocate, confirm and affirm trades by 9pm Eastern Standard Time on trade date. This is the early hours of the morning in Europe.

Currently, they have until 5pm EST the day after a trade.

“The further you’re away from New York, the less time you have for US trades,” said Adrian Whelan, global head of market intelligence at Brown Brothers Harriman.

Vikesh Patel, president of Cboe Clear Europe, a clearing firm, said European asset managers would have to adopt a night shift for some staff or move staff to the US, or a mixture of the two.

Firms were already moving staff or hiring in the US, Patel said.

Baillie Gifford is one such example. It was reported earlier this year that the firm is moving across three staff members from its trading and settlement teams, and hiring a fourth in the US.

What steps firms took to meet T+1 depended on their size, footprint and their prime brokers’ coverage globally and particularly in the US, said Patel.

Abrdn, for example, said it was not impacted by timezone issues as it already had operations and fund management teams in North America.

Robeco said it had a trading desk in New York and outsourced its back and middle offices to a provider that used a “follow the sun” support model. Robeco also takes this approach in its oversight of the provider.

The roles most likely to have to align more closely with US hours included those managing equity settlement, securities lending, corporate actions, cash management and collateral, said Brian Collings, chief executive officer of Torstone Technology, a post-trade software provider.

The impact of T+1 would be felt “across the board”, but asset managers with significant exposure to North American markets would be more affected, said Collings.

More important than shifting roles would be optimising processes, for example via the automation of tasks, he said.

Some European firms had been slow to prepare for the new rules because they incorrectly perceived their impact to be focused on SEC-regulated companies, said Whelan.

However, the new rules will require a “huge shift in timelines and behaviours” as firms “rewire the entire life cycle” of their trading.

“You might literally have to change what time you get out of bed,” he said.

Currently, firms had time to edit “in-flight” trades if there was an error, but the new rules left less time to do so and that required teams to become quicker and more effective, he said.

There was a risk of more failed trades, Whelan added.

Jeffrey O’Connor, head of market structure, Americas, at Liquidnet, an investment trading network, said the sell side faced more of a burden from T+1 than their clients on the buy side.

“If trade processing and recording is not done within the time requirements, it will be a frustration for the buy side and a loss of business for their sellside counterparty,” said O’Connor.

The major investment banks already adopted a “follow the sun” model, but brokers without global coverage would be most impacted on US executions sourced in Europe or other regions, he said.

Globally, larger asset management firms were well prepared for T+1, said Val Wotton, president and chief executive officer of Institutional Trade Processing, a business unit of clearing organisation Depository Trust & Clearing Corporation.

But mid to smaller-sized asset management firms might be depending on their broker-dealers or custodians to fulfil their obligations, Wotton said.

It was “critical” that firms conducted end-to-end testing from trade execution to trade settlement to ensure they were ready to meet T+1, he said.

They had also to test “non-standard” events, such as public holidays, double settlement days and corporate actions, such as tender offers and stock splits, he added.

*Ignites Europe is a news service published by FT Specialist for professionals working in the asset management industry. Trials and subscriptions are available at igniteseurope.com.