Market Participants Support Shorter Settlement Cycle

The majority (51%) of market participants expect the prevailing settlement timeframe for equities to be T+1 by 2026, according to the second edition of Citi’s “Securities Services Evolution” whitepaper.

This is up seven points from last year’s survey.

This sentiment is supported by several key markets moving towards a T+1 settlement cycle recently, including the United States, Canada and India.

Okan Pekin

Okan Pekin, Global Head of Securities Services at Citi, said: “We are seeing a greater sense of momentum and purpose in all developments across the industry, in particular the determination to move to a T+1 settlement cycle.”

“Delivering these changes will be no small feat but in due course offer the prospect of very substantial cost savings and efficiencies,” he said.

According to some new findings from this year’s whitepaper, 88% of market participants are either actively participating in, or exploring use cases for digital assets, blockchain or distributed ledger technology (DLT).

Meanwhile, 54% said a DLT-based market infrastructure could cut post-trade processing costs by 10-30%; whereas 79% believe that atomic settlement (the instant exchange of two assets that are linked) is achievable in less than 10 years; and 92% see the value and benefits of tokenization to market liquidity, and variety of tradeable assets.

Financial Market Infrastructures (FMIs) and market participants continue to have opposed views on a number of topics.

For example, FMIs see risk reduction as a major benefit of reducing settlement cycles, which will in turn enable lower margin requirements and the release of capital. In contrast, only 17% of market participants survey felt the same way.

On the other hand, FMIs and market participants have become more closely aligned on their views regarding DLT’s role in facilitating a successful transition to T+1/T+0.

FMIs believe that while DLT has a role to play, it is not an essential requirement.

Only 21% of market participants (down vs 40% last year) think DLT will be core to a shortened settlement cycle.

Citi’s whitepaper includes quantitative and qualitative data gathered from 12 financial market infrastructures (FMIs) and almost 300 market participants from banks, broker-dealers, asset managers, custodians and institutional investors around the world.