SimCorp A/S : Q&A with SimCorp’s Managing Director in APAC on T+1, Alternative...

Managing Director for SimCorp in APAC

Our session at the SimCorp APAC Summit discussing the impact of the transition from a T+2 to a T+1 settlement date for transactions in the US in 2024 garnered the highest level of interest. This reflects the global financial industry's preparations for the upcoming shift in the U.S. standard settlement cycle.

While the implementation of the T+1 settlement regime is slated for May 28, 2024, its repercussions are reverberating worldwide, particularly in the APAC region, due to the time zone considerations. The further you are away from New York, the less time you have for US trades.

Consequently, individuals and organizations are understandably concerned about the implications of T+1 for their operational efficiency, with apprehensions that existing systems may struggle to seamlessly adapt to this accelerated settlement timeline. Notably, the challenge of processing trades on a Friday, which necessitates completing post-trade activities on a Saturday, looms large for APAC investment firms.

In response, compliance with the impending regulations underscores the imperative of automating certain aspects of the settlement process. Failure to do so could potentially require personnel to work weekends to settle trades. To ensure timely settlement, streamlined workflows and a high degree of straight-through processing become paramount. Consolidating all relevant functions within a single platform offers a substantial advantage, as it minimizes the complexities associated with multiple systems and migration points.

Crucially, the essence of an effective settlement process aligns with the capabilities of a robust accounting system. This includes robust reconciliation and collateral management tools, which enable greater automation. These tools not only enhance the efficiency of the settlement process but also facilitate seamless connectivity with custodians, thereby promoting straight-through processing.

Edward Bee
Managing Director for SimCorp in APAC

APAC firms should not underestimate the formidable task ahead of them in preparing for the new regulations.

A recent and widely distributed report by market research firm ValueExchange^[1] indicates that custodians in Europe and the Asia Pacific region perceive T+1 as having a considerably greater impact (rated at 4.7 out of 5) on their businesses compared to their American counterparts (rated at 3.3 out of 5).

Challenges related to time zones, a shortage of operational personnel, and the need for coordination with custodians to cover North America are the most prevalent issues

Banking group Citi^[2] also found that among 500 banks, asset managers, custodians and institutional investors globally, 69 percent of those surveyed are focused on automating and standardizing client communications, while 64 percent are looking to upgrade/replace technology platforms as part of their preparations.

In the bigger picture, each firm must construct its unique checklist for readiness, as there is no universal approach, and the impact will vary depending on individual circumstances. Crucially, firms should assess opportunities for reducing manual processes and elevating automation, particularly within their post-trade operations.

Despite the initial investments required for technological and operational changes, automation and the adoption of straight-through processing are imperative under a T+1 regime.

Edward Bee
Managing Director for SimCorp in APAC

In the APAC region, allocations to private markets have lagged significantly behind those in North America and EMEA. However, we have observed private market investments accelerate and begin to close the gap in recent years. 

According to our 2023 Global InvestOps Report^[3], a substantial 70 percent of respondents from APAC are planning to augment their allocations to real estate by 1-10 percent over the coming 12-24 months, while 68 percent have similar intentions for infrastructure investments. For many regional institutional investors, private credit is also a relatively new asset class.

As investors continue to increase their exposure to alternatives, we expect their needs to continue to evolve, specifically around data collection and transparency, as well as reporting requirements. This is exposing a challenge for many buy-side firms who are managing data across multiple fragmented systems.

This unfolding scenario presents a substantial opportunity for companies like SimCorp, as we distinguish ourselves as a natively built investment management platform capable of seamlessly handling all asset classes.

Our strength within Alternative Investments^[4] serves as one of our most compelling advantages in the market. It has been a focal point for me during my inaugural year, and I am keen to continue emphasizing this crucial aspect.

"The fragmentation within specific markets becomes apparent when talking about ESG. Some markets, such as Singapore, have taken substantial steps towards prioritizing ESG, evident through the recent implementation of new ESG disclosure requirements. In contrast, there are other markets where investors have yet to place significant emphasis on ESG considerations.

However, it is my anticipation that ESG adoption will gain momentum across the region. This shift is driven by a growing interest in gaining a deeper understanding of ESG principles, especially as investors diversify into international markets, encounter international regulatory constraints, or seek to raise capital on a global scale.

ESG currently represents a trend in education. Individuals and organizations alike are striving to comprehend the intricacies of ESG and how it directly relates to their objectives and values. It is positive for us to start having the first referenceable ESG clients in the region."

1. Operationalizing T+1 by ValueExchange (2023)
2. Securities Services Evolution 2023 by Citi (2023)
3. 2023 Global InvestOps Report by SimCorp and WBR Insights (2023)
4. The hypergrowth of alternative investments by SimCorp (2023)