As the landscape of communication continues to evolve in our increasingly digital world, the financial services industry is feeling the pinch of regulatory scrutiny. In recent years, financial firms have faced nearly $2 billion in penalties from the SEC and CFTC due to unregulated “off-channel” messaging. This surge in “off-channel” communication, including usage of platforms such as WhatsApp, WeChat, SMS, LINE, and mobile calls, is largely fueled by the rise of hybrid work. Yet, regulators maintain that all business communications must be monitored, auditable, and occur only within official channels. In the words of SEC Chair Gary Gensler, “As technology changes, it’s even more important that registrants appropriately conduct their communications about business matters within only official channels. And they must maintain and preserve those communications.”
Move to T+1 Impacts Securities Settlements Operating Model
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The following contains updates to a previously published article.
The SEC has adopted a final rule to shorten the standard settlement cycle for most securities transactions from two business days (T+2) to one business day following the trade date (T+1). The reduced settlement period is forcing companies to reexamine their post-trade processes and procedures, which include communication methods. This article discusses several operating model changes to help with the transition to T+1 ahead of the compliance deadline of May 28, 2024.
It’s a relief to have a finalized date for T+1, despite the final date being sooner than we all wished. Many market participants had favored a compliance date of September 3, 2024 (falling on the Tuesday after Labor Day), to provide more time to prepare for the transition to the shortened cycle. The SEC ultimately decided on a compliance date of May 28, 2024 (the Tuesday after the Memorial Day weekend), an extension of two months from the proposed rule.
It’s a relief, as well, to know that the majority of securities will continue to flow through straight-through processing (STP) regardless of the shortened cycle.
But what about the post-transaction processes that occur between T+0 and T+1, such as institutional trade allocation/affirmation, asset servicing, DTCC night cycle delivery, and stock loan recall? The list of impacted processes and events goes on. I don’t need to tell you that it’s important for operating models to be reviewed and for connectivity between people, processes, and platforms to be addressed so that the processing of transactions and the handling of ultimate exceptions are managed seamlessly in this new world. Operations teams no longer have the luxury of 50 back-and-forth emails for one exception resolution in a compressed lifecycle or traditional ‘follow the sun’ operating models.
Preparing for T+1
Practically speaking, the move to T+1 means a number of post-transaction processes (that previously happened within one business day of a transaction) will need to happen by the end of the same day. Batch processing cycles will need to be updated. In addition, communication around transaction exceptions or breaks will need to happen more quickly and with more efficiency.
Email is currently the main method of communication between stakeholders in this process, as is a ‘follow the sun’ model. When operating models are reviewed, we need to ask some fundamental questions about how things are done now, how they relate to the past vs. a future state. Email was born in 1998, lacks transparency, structure and security. Nightly batch processing existed in a T+5 environment, and traditional ‘follow the sun’ mechanisms spill you into a T+1 processing timeframe. None of these solve the email black hole problem; did the recipient receive my message, will they respond in time, did they see my attachment, did it go to the right team group.
The adjustments that financial firms need to make to achieve T+1 aren’t just about speeding up existing processes—they’re about changing the way parties think and interact with more efficiency. Minutes will matter more and more in this new world. Here are three ways the industry can make progress toward achieving the T+1 goal as it relates to communication in a new, and more connected world.
1. Aggregate communication methods
Typically, when traders, salespeople, customers, or outsource providers need information or resolution on an outstanding transaction, they send an email. As a result, I hear from customers that it’s not uncommon for a broker-dealer operations to send and receive north of 5 million emails every month. One customer shared that the average number of back-and-forth emails it takes to resolve a transaction exception is 57. And despite enormous innovation of operations processes (including the rise of new FinTechs over the last several years), operations stakeholders are still drowning in emails related to the 1% of transactions which have a break in straight-through processing.
I’m not suggesting email goes away. It won’t. Many firms have done lots of great work to convert emails to tasks and enable powerful downstream connectivity to respond to emails swiftly. But some of your clients and partners prefer other channels of communication. My suggestion is that you incorporate those channels into your communication strategy. We no longer have time to send an email and wonder if or when the recipient has read it whilst waiting for a response.
Meet your clients where they are with a robust communication aggregation strategy.
- If they use chat, let them. Aggregate it with your “email-to-task management tool”.
- If they use email, let them. Ensure you have proper routing and monitoring capabilities through automation by using NLP (natural language processing) and machine learning to help organize their workflows.
- If they want to call you instantly, aggregate that flow by inserting telephony into chat and into your email-to-task management tool.
The goal: Remove context switching from communication, and combine all methods into one. There are many tools that support these types of flows, or you can easily add layers of tech to your proprietary “email-to-task management tooling”. Symphony can help put you in touch with providers of these tools if you wish.
The message: Rather than always defaulting to email, be more deliberate and targeted when it comes to communication methods. Tools like instant voice, targeted notifications, alerts, and embedded auditable and compliance-enabled chat can be a more efficient way to exchange time-sensitive information, including attachments.
2. Use a verified & trusted industry directory
Email’s lack of transparency, structure and, security also hinders a sender’s ability to know whether their message made it to the right team. Are they online? Was it sent to the correct region? Is it the right coverage team? If your contact has moved to a new group, or is not responsible for addressing your query, the best you can do is hope that someone will forward your message to another person who can assist you. Accountability diminishes with multiple groups on an email chain.
Alternatively, a verified & trusted industry “OpsDirectory” can ensure that you are routing queries to the right place, as well as reduce the time of resolution by giving people access to a central store of who is responsible for what, along with transparency of proper escalation points. An “Ops Directory” with standardized taxonomy identifying the right group enables users to determine and authenticate the identities of the individuals they need to reach. (Let’s not have another incident where you spend the weekend compiling a list of contacts in a T+1 environment.)
BTW - This is why Symphony is working with the industry on an ops directory!!!
The goal: Put an end to spreadsheet sharing and lost weekends. We believe having a verified ops directory is a game changer for exception management. This will provide ops teams with the ability to find the counterparties they need to escalate contact by sending them a chat or targeted notification—instead of an email that is likely to be overlooked in a crowded inbox. Having this type of directory allows for more real-time resolution. I hear from customers that this method will even allow them to avoid settlement failures once T+1 takes effect due to the fast follow.
The message: For an industry ops directory to support T+1 transaction settlement, it needs to be up-to-date. Individual users cannot always be relied upon to keep their information current. That said, firms that link their active internal directories, and centralize this robust data set to Symphony will create a better view of the community over time.
3. Pursue interoperability across tech solutions
Another key step with the shortening transaction settlement lifecycle is to continue investing in tech solutions and enabling interoperability between partners. This not only creates a seamless interaction between market participants but also a better experience for operation stakeholders. Having access to modular, extensible and / or embeddable solutions enables powerful connectivity inter-firm and intra-firm.
In addition, there are advantages to connecting data to people, people to process, and people to communication. Interoperable solutions can –
- Enable users to access data, tools and pinpoint specific information without leaving the platform they are using
- Allow you to provide clients (broker dealers, securities services firms, etc.) access to communication without context switching or rekeying information
- Allow your clients, using APIs and connecting systems, the ability to “self-service” their queries to improve customer support and reduce workload on your teams
Interoperable solutions reduce context switching and allow users to collaborate more seamlessly, whilst also reducing email. Tools that centralize transaction information would benefit from communication capabilities to support both internal and external data flows.
The move to T+1 is an important step forward for financial markets, and the best way I see forward is threefold: aggregate communication methods, leverage a trusted industry ops directory, and promote interoperability between solutions. Taking these steps requires rethinking our approach to operating models around communication during the post-transaction settlement cycle.
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