CLS has issued an update on the potential change in CLSS settlement schedules following the transition to T+1 securities settlement.
CLS will not make any operational changes to CLSSettlement before the expected implementation date of T+1 in May 2024. While CLS will not move the deadline to 00:00 CET for the calculation of the initial payment schedule (IPIS), settlement members may submit their trades to CLSSettlement until 06:30 CET for settlement on that day.
Apart from being subject to any required approvals, any changes to the existing CLSS settlement service would require a comprehensive risk assessment supported by detailed modeling and analysis and, crucially, would require the entire ecosystem to make changes to its systems and processes.
The survey of CLS settlement members to assess the feasibility of extending the IPIS deadline to 00:00 CET showed that over 40% of settlement members, representing approximately 50% of CLSS settlement average daily value (ADV), reported that system development may be necessary to accommodate a move to the original CLS payment schedule, with significant time to implement.
An analysis of CLS trading data to assess how the move to T+1 could affect asset managers and funds showed that the overall impact on CLSS settlement may be limited. A value corresponding to approximately 1% of CLSSettlement ADV is executed on a T+1 basis, which includes volumes where one side is USD and a mutual fund is part of the trade.
The asset manager’s approach indicated that 40-50% of 1% of CLSSettlement ADV could be affected by the transition to T+1 and could be settled outside of CLS. More than 50% of asset managers surveyed said the majority of their risk can be mitigated through CLS, even without changes to custodian limits or CLS terms, while 35% have not yet decided how to respond to impact of T+1 .
CLS said:
“CLS will monitor the impact of the transition to T+1 after implementation in May 2024 and will inform stakeholders in late June and September. We will continue to work closely with our settlement members, asset managers and the wider ecosystem to explore potential solutions to address any challenges that may arise from the transition to T+1, while ensuring that the stability of the FX ecosystem remains our top priority.
In the meantime, execution and operational efficiency across the asset management and fund community will remain paramount. For same-day orders that cannot be settled within CLS due to custodian downtime, CLSNet, CLS’s automated and standardized bilateral netting calculation service, can help reduce funding obligations and the number of payments required by calculation of net payment obligations that facilitate the clearing of payments’. .