T+1 deep dive, part 2: Future outlook for Asia and Europe

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Jack Parker: Hi. You're listening to Market Matters, our markets series here on J.P. Morgan's Making Sense podcast. I'm Jack Parker, an executive director in our U.S. Custody Product team. And I'm joined by Emma Johnson, an executive director on J.P. Morgan's EMEA Custody Product, and Sahil Shah, an executive director on our APAC Custody Product team. Welcome, Emma and Sahil.

Emma Johnson: Glad to be here, Jack. Thank you.

Sahil Shah: Thanks for having us, Jack.

Jack Parker: This episode is a continuation of our conversation on accelerated settlement. Part one covered the transition in the U.S. to T+1, and associated lessons that we learned from that. Whereas today we're honing in on accelerated settlement in Europe and APAC. So Emma, starting with you. You're a member of the UK and EU industry T+1 task forces, working with industry associations such as the Association for Financial Markets in Europe and the Association of Global Custodians. What can you tell us, and our audience, about the current status of the T+1 discussions in the UK?

Emma Johnson: Thanks Jack. I think it's safe to say we are on a T+1 journey here in Europe. And in the UK we have an accelerated settlements task force, which was introduced by the UK government back in December 2022. The task force is now in the second of its two-year mandate to explore the opportunity for the remaining UK securities to align with UK government bonds and settle on a T+1 basis. Work in year one was led by the chair of the task force, who concluded that the UK should indeed move to T+1, and should do so by the end of 2027. We should naturally learn lessons from the US. And there should be collaboration with the European Union and Switzerland, to see if an aligned move across geographic Europe can be achieved. And a technical group should be created to determine the what, how, and finally when the UK should move to T+1. Now, J.P. Morgan is a member of the technical group, which has subgroups covering the full trade to post trade lifecycle and represents all sectors of the industry. And on the 27th of September this year, the technical group published its interim report, with a series of draft recommendations of how the UK can achieve their move to T+1. Which includes, at a high level, the instrument and transaction scope, static data requirements such as the full onboarding of clients prior to trading, and sourcing SSIs electronically; market practice for operational processes covering the allocation, confirmation, matching and settlement instructions; and more market practice, this time for stock lending recalls and presale order instructions. And lastly, an extension to the CREST instruction deadline. Which will move from 8 PM GMT to 9 PM GMT. In terms of the next steps, a public consultation will run until the 31st of October 2024. And there will also be a public event to discuss the recommendations. And lastly, in December a final report will be published, which will also include the date the UK should move to T+1.

Jack Parker: Great, thanks Emma. Now what about the EU? What should we know about the status of T1 discussions there?

Emma Johnson: It's a similar story, albeit there are a number of pillars at work assessing if, how, and when the European Economic Area should move to T+1. So firstly, ESMA, the European Securities and Markets Authority, are in the process of reviewing feedback from a Q4 2023 call for evidence. Which will be published by the 17th of January 2025. ESMA are supplementing their analysis through bilateral discussions across industry groups, and through the efforts of an industry led T+1 task force. Now, the EU T+1 industry task force, which is relatively similar to the UK industry technical group, has established eight work streams, and represents the trade to post trade lifecycle, with each work stream considering the how, what, and when T+1 can be achieved in the region. Now, the EU ask force has recently shared its report of findings with ESMA, in addition to the European Commission, and National Competent Authorities across the region. Meanwhile, ESMA held a public hearing which somewhat underlined the EUs intent to move to T+1, and showed a willingness to collaborate and align with the UK. Which is promising.

Jack Parker: Thanks Emma. So Sahil, I want bring you into the fray. Is there as much focus in APAC on UK and Europe T+1 as there was for U.S. T+1?

Sahil Shah: Absolutely. I think accelerated settlement cycle, uh, as a theme is top priority for our clients in the APAC region, and clients are keenly watching how the UK and the European markets, uh, plan their move to T1. I do believe clients are now better prepared to manage transitions to T1 in other global markets, given that they have developed processes and operating models catering to the U.S. market. And again, you know, while this basic framework can be leveraged, models will evolve, and we will need to tweak some of these operational processes to accommodate market specific nuances. Now, again, as an example, one of the key areas, which was a focus for clients in APAC was trade affirmations. However, for the UK and the European markets, this may not be as much in focus as these are matched markets. Lastly, I do think something that the U.S. transition has showed everyone, was that early client engagement and industry education was invaluable. And with any market change of this magnitude, we need to continue with this playbook to ensure seamless transition in UK, Europe and other markets globally.

Jack Parker: Thanks Sahil. Anything else to add on the key themes clients should be thinking about now, Emma?

Emma Johnson: Yeah. I mean, I echo  Sahil's points. I think there is much our clients could start to think about now. I think it's important to start to consider implementation planning and associated governance early on. And also to look at what was implemented for the US, and see whether it can be leveraged. I think it's important to be engaged, collaborate with the industry, work with your peers, clients, providers, and market infrastructure to understand the operating environment, and where the current inefficiencies are, and why. And then take a front to back look at operational processes and system capabilities. You know, for example:  Are your systems STP? When do you fund or instruct FXs? And I think take a front to back look is really important.

Jack Parker: Thanks. So lastly, Sahil, can you give our clients a status on accelerated settlement developments across the Asia-Pacific region?

Sahil Shah: Absolutely, Jack. Overall, the general view of regulators, uh, clients and market participants is that, a shorter settlement cycle is a good thing, um, as it reduces counterparty risk while improving liquidity as clients get access to securities and funds. Uh, specifically for the APAC markets, they are on a wide spectrum of settlement timelines, you know, across the region. At one end of the spectrum, we have markets which are still catching up and just moving to T plus two. Example, Philippines, uh, which went to T plus two last year, and Sri Lanka, which went to T plus two earlier this year. Then in the middle, we have markets who are formally engaging and considering to move to T plus one. Australia, where the ASX indicated this to be in 2030. Uh, Pakistan, which actually introduced a pilot session earlier this year, but is on pause currently. And you also have markets like Japan, Taiwan and Indonesia, which, while they are not formally engaging, are actively watching how this space grows. And then, on the last end of the spectrum, we have markets like India, which transitioned to T plus one a few years ago and is now looking at providing clients with an optional T plus zero settlement cycle. So in summary, yes, the settlement acceleration as a theme, uh, is here to stay. And again, as with any change, we have all hands on deck to ensure our clients globally are able to navigate these changes.

Jack Parker: Thanks Sahil, that's really useful. It sounds like there's a lot going on across the region. That's all the time that we have for today. Thanks for listening and being on the accelerated settlement journey in EMEA and APAC with us. We hope you enjoyed it. Those who missed episode one on T+1 in the US, please be sure to listen to that as well. Thanks again.

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