One prominent asset manager stated in the conversation that it still has a war room in place because “we’re now into an index rebalancing cycle, with Russell coming up it will be the highest volume of trading activity on the street – it is every single year – on 28 June.”.

Another speaker on the call noted: “We did see in the earlier MSCI rebalance a drop off in affirmation rates on that day. So, we’re spending some time with some of the clients that had those challenges.”

They continued: “It’s interesting though, a lot of those accounts are being used – or the funds are only used – for rebalance activity. So, they hadn’t necessarily had affirmation turned on at the custodian […]We saw some teething issues as it was the first time those accounts were being used as kind of working through the rebalances. I expect there’ll be similar challenges [with S&P and Russell Index rebalances] .That’s to be expected.”

The sentiment was echoed on the securities lending side which is also putting pressure on asset servicers and participants.

Custodians discussed that rebalancing often strains securities lending operations due to the high volume of trades and recalls.

Despite that, Eusebio Sanchez, head of execution services, Asia clusters, securities services, Citi, noted: “Nothing really changes with how we manage passively managed tracking funds. We maintain some level of buffer for all index tracking names to account for intra-rebalancing reductions.” 

Proactive strategies, such as restricting and recalling deletion names ahead of settlement dates, were discussed to minimise the impact on trade settlements and lending activities. Emphasis was placed on visibility and pre-emptive actions to handle index changes smoothly.

Sanchez added: “Heading into the rebalance date, we typically restrict and start recalling those deletion names ahead of settlement dates. Nothing really changed at all with our passively managed clients. Overall, the experience has been positive, and we consider this quite a success.” 

Another custodian raised a critical point about visibility into index changes and the proactive recalling of stocks, with this proactive approach having helped mitigate the impact on trade settlements. Citi confirmed this, noting their overall positive experience with the T+1 transition, despite some frustration over the industry’s late consensus on best practices.

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The TRADE’s sister publication Global Custodian has partnered with The ValueExchange to launch a new portal for market participants to log their issues regarding preparations for the shift to T+1 in the US and Canada, with concerns and questions to be addressed by a network of industry experts and settlement specialists. 

With preparations under way for settlement compression in US and Canada ahead of the May 2024 deadline, the scale of the challenge for individual firms is now becoming clear. While much industry comment to date has focused on the “big picture”, many of the issues identified will be experienced differently at firm level. 

Visit the T+1 Industry Issues Forum by clicking here. 

“The global industry is now entering a phase where we need detailed and targeted answers on how to prepare for T+1,” said Barnaby Nelson, CEO, the ValueExchange. “In launching our T+1 Industry Issues Forum together with Global Custodian, our aim is to help firms prepare by giving them the clarity they need. We have created a single site where they can raise all their T+1 queries and we will direct them to the experts and resources that have the detailed answers.” 

Through a dedicated link, firms are able to log their questions. These will be directed anonymously to appropriate experts for comment and the answers initially released in a series of regular webinars, the first of which is set for 12 July (details to follow). The link will also be distributed through a number of industry launch partners, including the TMX, CCMA, ISITC and FIX with others to be added in the coming weeks. 

“As a global publication we continue to hear mounting concerns being voiced around the scale of preparation and its far-reaching impacts throughout the world, and this is only going to exacerbate as we move closer to the deadline,” added Jonathan Watkins, CEO, Tungsten Publishing and managing editor, Global Custodian. “This initiative allows us to connect those worries directly with the experts who are doing a great job of trying to educate organisations throughout the world when it comes to preparation for the shift to T+1, and get specific answers to their questions – no matter how niche or high-level. 

“Make no mistake, the challenge is real and daunting, and time is ticking, so we’re eager to do anything we can to help global participants prepare for this monumental shift in market structure for firms around the world.”

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