Regulatory outlook in securities services
Regulation is a key driver of change across the securities services industry, and it has powered the journey towards cross-market harmonisation. Regulatory reform, including Central Securities Depositary Regulation (CSDR), Target 2 Securities (T2S), Markets in Financial Instruments Directive II (MiFD II), and European Market Infrastructure Regulation (EMIR) have rearranged the post-trade landscape. In this article, Deutsche Bank’s Boon-Hiong Chan and Britta Woernle summarise the defining developments that have global impact, as well as those that are region-specific
Global
Shortening settlement cycles In recent years, there has been a global trend towards accelerated settlement cycles. However, the transition to a T+1 (settlement within one day of the trade) and potentially a T+0 cycle (settlement the same day) requires implementing new technological, operational and industry processes on a large scale. Asia is a market of accelerated settlement
cycles, with China Interbank Market’s (CIBM) government bonds on settlement cycles of T+0, T+1 and T+2. T+3, and a special service where settlement on the trade date plus four or more days, where four days is the minimum ((T+n (n >=4)), were subsequently rolled out to allow sufficient funding time for global investors, especially those unable to settle due to local holidays. In 2021, India made a determined push for a T+1 settlement cycle for listed equities, and that has been live since February 2022. The new settlement cycle started with the bottom 100 stocks, and with a phased approach towards the goal of 5,000 equities by January 2023. The initiative has been heralded as a highly positive development from a domestic and regulatory perspective. However, foreign portfolio
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investors (FPIs) into India continue to face challenges, including in foreign exchange, which is currently under discussion to ensure seamless implementation. Accelerated settlement cycles are also being discussed in the Philippines (to move to T+2). Challenges to the value chain caused by system outages in the country have accelerated discussions with migration testing, which is expected to come in Q4 2022. The US is also intending to transition to a T+1 settlement cycle, with rollout scheduled in the first half of 2024. Transition to accelerated settlement cycles can create operational challenges for cross- border investors when there are significant time zone differences, for example between Asia and the US. In June 2022, the ASEAN+3 Bond Market Forum (ABMF) and the Cross- Border Settlement Infrastructure Forum (CSIF) organised a webinar outlining accelerated securities settlement, and emphasised the need for industry-wide engagement, collaboration and support.
Digitalisation and digital assets Increasing digitalisation impacts the industry since greater regulatory scrutiny falls
Photography: Alamy
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