, the CEO of Luxembourg-based securities services provider Clearstream Banking, explained in an interview with Delano how the shift to T+1 settlement in the US will notably affect its international clientele, particularly in Asia, due to the firm’s real-time settlement capabilities not mitigating the timing and currency conversion challenges anticipated with this change.

Kangkan Halder: What are the main challenges of moving to T+1 settlement in the US by May 2024, and how is Clearstream preparing?

Philip Brown: We have to separate the move to T+1 into two separate issues. One is the technical ability to cope with T+1, and the second is the ability of the businesses--and I don’t just mean our business, but we have to think about Clearstream as a vehicle through which our clients do business--to cope with T+1. So, let me address the first question. Technically, there’s no change needed for us. We run a real-time settlement platform today, and a majority of our settlements are already settled in T+0, meaning the same day. So, in that regard, a move to T+1 for us is not significant from a technical perspective.

Could you estimate Clearstream’s T+0 settlements?

For the cluster of Luxembourg business, it’s north of 40%. And the reason for that is a lot of our settlement volume is related to the movement of collateral, and collateral moves on a same-day settlement basis.

So, there is no material impact on Clearstream?

Technically, from our business perspective, there’s no impact at all. See, we support the Chinese market, which is already at T+0. We supported the European markets when there was a mixture of T+3 and T+2, and the Indian market settles at T+1. So, we already support an array of more than 60 markets worldwide, each with different settlement protocols. From our perspective, it doesn’t really affect our ability to run our business day-to-day if one market or a number of markets change their settlement cycle. The impact is more on customers.

How so?

The biggest impact will be on clients that are not based in Europe or the United States. A large percentage of the investments of Asian clients are in US dollar instruments, as the US is by far the world’s largest capital market. So anybody that’s investing cross-border is likely to have a US investment in their portfolio. And there are two main impacts on these clients due to the T+1 shift. The first is the timezone difference, which means in a T+1 environment, they have less time to resolve settlement issues discovered during their day.

This is particularly challenging for clients running batch processes, which can only be executed once a day. The second issue involves the foreign exchange market, which settles in T+2. This misalignment means clients needing to secure US dollars for investments must plan in advance or face potentially unfavourable currency exchange rates.

Are there any other challenges you foresee?

Yes, there is a third impact, true for all clients. The shift to T+1 brings uncertainty to the securities lending market. The way securities lending works is that if I lend out my securities and then decide to sell them, I have to recall them. With T+1 in the US, the recall period becomes shorter, requiring securities to be returned more quickly. So, I think there’s an unknown impact on securities lending.