The rapid settlement of the US has hit more than expected, a Citi poll says by Reuters

Written by Laura Matthews

NEW YORK (Reuters) – The shift to clearing short-trade compensation in U.S. securities earlier this year had a bigger-than-expected impact on market participants across the board, with Europe reporting the strongest results, Citigroup research said.

The US accelerated its settlement cycle in May, requiring stocks, corporate and municipal bonds and other securities transactions to be settled one business day after the trade, instead of two, or T+1.

The change had a “bigger-than-expected impact” on 44% of buy-side firms, the Securities Services Evolution survey said.

Europe saw the biggest impact due to the challenges of managing liquidity and liquidity problems in the middle of the night, it added. Foreign investors use foreign exchange to finance their US securities.

The survey of nearly 500 institutions, conducted in June, gives an idea of ​​how the industry has managed the change around the world, and highlights how T+1 was felt throughout the business cycle.

“Every area appears to have been more affected than initially expected, from funding to headcount, mortgage lending and default rates,” the study said.

Securities lending, the lending of shares or other securities to investors, saw a significant impact across organizations, rising to 50% from 33%. Funding or margin requirements, accounting and funding costs are also affected.

“Financing is also at the center of this impact – albeit unevenly across sell-sides and buy-sides,” the study said.

Some 56 percent of retail companies said their lending stocks and recall operations were “significantly affected” by the move. That was one of the biggest concerns expressed by market participants before T+1 was launched.

In addition, 52% of banks and brokers realized that their statistics and staffing levels were affected, indicating that choosing to hire instead of using automation left the sales side “exposed to a large volume of manual processing and different handling caused by their customers”, the survey. said.

Citi said more time is needed before the “true, deep” impact of the resolution cycle is understood.

The Depository Trust and Clearing Corporation, the Securities Industry and Financial Markets Association and the Investment Company Institute led the move at T+1. They did not immediately respond to a request for comment.