Achieving Post-Trade Automation: How LiquidityBook Helps Market Participants Prepare for T+1

This coming May, the US, Canada and Mexico will officially shorten their equity settlement cycle from T+2 to T+1 1. This transition may cause disruption in the short term, but will create market efficiencies over the long term: expected benefits will include reduced dependency on manual processes, mitigated counterparty risk and both greater liquidity and greater capital efficiency. This seismic shift reflects larger global efforts to shorten the settlement cycle, with countries such as the UK expected to follow suit. With just six months to go until the final deadline, affected firms should be finalizing all operational and technological enhancements and engaging in end-to-end testing, per the DTCC’s recommendation.

It adds up to a strong case for increasing investment in post-trade automation. By eliminating manual tasks and bringing together fragmented processes, market participants can better prepare for T+1 and solve workflow challenges that have long plagued middle- and back-office operations.

Running Up the Score

For executing brokers, the accurate and timely confirmation of trades with their counterparties is a primary aspect of post-trade processes. Buy-side clients will often send allocations at late hours due to tech fragmentation and other challenges, which has been acceptable in a T+2 world. Now, with the condensed settlement timeline, it’s especially important that brokers find a way to help their clients allocate securities or funds to their accounts more rapidly. In turn, buy-side firms must work to provide these allocation details earlier in the trading day, as these instructions can help streamline the entire settlement process. Increasing efficiency on both sides will create positive downstream effects, speeding up the entire settlement process.

Firms that don’t take these measures will be putting themselves at reputational risk, as the move to T+1 is widely expected to cause a significant increase in settlement failures. As rollout begins, the DTCC will begin grading firms using a “T+1 scorecard,” with results available for public viewing by investment managers. Down the road, if deciding between two brokers offering similar execution quality, buy-side firms will naturally send more orders to the one with the higher T+1 score. At scale, this dynamic could be hugely damaging to brokers that fail to adapt, emphasizing their need for automated central matching solutions – better yet, ones that leverage the network services they already use.

Keys to T+1 Success: Efficiency, Flexibility, Acceleration

LiquidityBook’s Post-Trade Hub – an important part of our suite of modular, cloud-native solutions for sell-side middle- and back-office operations – is an ideal choice for brokers seeking to increase their STP rates. By enabling their clients to plug into our proprietary managed FIX network, broker-dealers can accept allocation instructions seamlessly via FIX. From there, our system serves the orders to the correct accounts, ensures the details match among all parties and directs them in real time to the right clearing destination (since LiquidityBook offers full support for multi-clearing setups). In addition to robust functionality, our Post-Trade Hub offers easy integration with third-party systems, so brokers can handle their entire post-trade workflow via one screen, relying on us for one thing or everything.

For the buy side, the ability to both natively generate FIX allocations and utilize pre-established connections to the industry’s biggest brokers is a powerful benefit of LiquidityBook. Through one resilient, robust portal that automates as many tasks as possible, these firms can ensure their entire settlement workflow will be processed within just a few hours.

And that’s just the beginning. We’re always innovating to meet the unique needs of our clients – and the shift to T+1 is no exception. Our cloud-native, API-based architecture makes it easy to add practical functionality based on client requests. For example, we can configure our portal to allow buy-side users to directly allocate on their brokers’ post-trade hubs, whether manually or via file upload.

This flexibility is perhaps our best weapon in supporting our clients through T+1-fueled disruption. At a time when efficiency has never been more important, these firms can feel confident that they have a robust, battle-tested system working and innovating alongside them, all while reducing human error. Our long-term evolution toward post-trade automation aligns incredibly well with where the industry is today, and we – and our clients – will be well-equipped to tackle whatever market structure changes lie ahead.

Interested in how we can help your firm prepare for T+1? Reach out today.

  1. Canada and Mexico will officially transition to T+1 on Monday, May 27, 2024. As this is a market holiday in the US (Memorial Day), the US will officially transition the next day, Tuesday, May 28, 2024.

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Achieving Post-Trade Automation: How LiquidityBook Helps Market Participants Prepare for T+1

his coming May, the US, Canada and Mexico will officially shorten their equity settlement cycle from T+2 to T+1. This transition may cause disruption in the short term, but will create market efficiencies over the long term: expected benefits will include reduced dependency on manual processes, mitigated counterparty risk and both greater liquidity and greater capital efficiency.