Securities Services
Securities Services
Evolution 2023
Disruption and transformation in financial
market infrastructures
Securities Services Evolution 2023 2
Contents
Foreword 3
Executive Summary 4
Introduction 6
Methodology 6
What is driving the FMI agenda today? 7
In the spotlight: A single market for Latin America 12
In the spotlight: Clearing consolidation in Europe 14
Settlement Transformation 16
In the spotlight: T+1 and Securities Lending 26
DLT and Digital assets 28
Conclusion 37
Acknowledgments 38
Contributors 39
Endnotes 40
Securities Services Evolution 2023 3
Since the launch of this whitepaper back in 2021, Citi Securities Services has been at the forefront of ongoing market
infrastructure developments and how the industry is responding to these changes. Each year we have relied on the collective
insights of industry leaders across the world, and we would like to extend our thanks to the 483 survey respondents and 12
financial markets infrastructures (FMIs) and industry participants that have contributed to this year’s “Securities Services
Evolution” whitepaper.
Last year we saw the emergence of major trends including digitization and accelerated settlement that are now dominating
the industry agenda. This year, the data shows increasingly strong consensus amongst market participants on the likelihood
of T+1 in major markets and the significant impact this is likely to have on legacy technology and global operating models. As
a result, much of the world is now also engaged in an urgent effort to prepare for and make the most of imminent changes
to accelerated settlement cycles. In parallel, we’ve also seen a growing number of live and commerically viable initiatives
amongst banks, broker-dealers and FMIs.
How organizations manage the balance of these two core trends is a highly complex question. Supporting innovation while
maximizing global consistency of the client experience remains core to the Citi Securities Services offering and we look
forward to continuing our partnership with organizations across the globe as they seek to prepare for another significant
year of transition ahead.
We hope you find this year’s paper insightful and informative as always.
Foreword
Okan Pekin
Global Head of Securities Services, Citi
Securities Services Evolution 2023 4
Executive Summary
Securities Services Evolution 2023 tracks the continuing
evolution of our industry from being on the brink of
change (in 2021), to seeing ongoing transformation (in
2022), to a year in which execution and realization have
become core priorities in 2023. Not only is the industry
preparing to remove an entire day from the settlement
cycles of the world’s largest capital market, but firms
are also readying themselves for what they expect to
be imminent changes to other settlement cycles, digital
currency adoption and even atomic settlement in the
next five years.
The FMI agenda
Across the world, FMIs (most notably the Central
Securities Depositories, or CSDs) are almost all facing
the same two headline challenges: How to accelerate
transformation and innovation (in settlements and
digital assets above all) while at the same time
managing a transition away from ageing, legacy
infrastructures. Across digitization, accelerated
settlements and legacy transition, the ecosystem
impacts of these pressures are now top-of-mind for
many FMIs, as they shift their historical focus from
managing (their own) platforms towards managing a
wider ecosystem. From owning individual change to
facilitating change across the industry.
While FMIs struggle with these challenges almost
uniformly, almost regardless of location, there are
important differences. In Latin America, we are about
to see one of the most ambitious consolidation projects
ever realized between Colombia, Peru and Chile. In
Europe, the lasting benefits of clearing competition
are now coming into question. In the digitization space,
those in Asia and Latin America continue to innovate to
drive financial market participation — while their peers
in North America and Europe are shifting their focus
towards the provision of common industry platforms. In
Europe, Australia and other markets, corporate action
standards continue to be a focus.
Faced with what seems to be an inevitable acceleration
in settlement cycles (coming to the US, Canada and
most likely Mexico in 2024), FMIs look set to have an
increasingly complex operating agenda for years to come.
Securities Services Evolution 2023 5
Settlement transformation
89% of our survey respondents expect their local settlement
cycles to shorten to T+0 or T+1 within the next five years.
This means a vast amount of change ahead for an extended
period. As firms across the world are discovering with
their preparations to T+1 settlement cycles in the US and
Canada next year, the impacts of accelerated settlement
are profound and touch everything from trade fails to
headcounts and treasury requirements. Next year’s
transition will impact up to eight different departments in
each organization but in differing ways, depending most
of all on where firms are located in the world. Those in
Europe and Asia will be profoundly impacted by the treasury
implications of T+1, while those in North America contend
with regulatory requirements and securities lending liquidity.
With each market transition, the industry’s best-practice
sharpens a little. After India’s T+1 move in early 2023,
the path towards market readiness is clear: First get
clients and counterparties engaged; then drive internal
automation; and finally put in place resources and
location strategies. Across all of these areas, the ability
to depend on real-time communications, feeding a real-
time view of inventory is increasingly critical.
With each market move increasing dislocation risks
between different global settlement cycles, the
likelihood of the T+1 domino effect continuing is high.
DLT and digital assets
2023 sees 74% of our respondents engaging in
distributed ledger technology (DLT) and digital asset
initiatives (increased from 47% in 2022), in a clear
sign that the DLT momentum continues to grow,
despite negative news headlines around FTX and other
initiatives. But while digital asset and crypto-currency
activity continues (notably in Europe and Asia), building
and preparation activity seems increasingly focused on
DLT and tokenization, as the industry looks to leverage
the choice and flexibility that the technology offers in
operating processes and market rules.
As this increased activity moves into live environments,
the dependencies that lie ahead are becoming more
granular. In need of a currency leg for digitized
transactions, the industry is increasingly bullish on their
expectations of digital cash being operational within
five years (through a range of Central Bank Digital
Currencies (CBDCs) and more commercial mechanisms).
1
Organizationally, the focus is increasingly on those
whose role it is to govern our infrastructures — not just
regulators but also risk, compliance and finance teams.
Technologically, there has also been a marked shift in
who is expected to manage the burden of legacy platform
connectivity — from the market participant to the
provider. And lastly, but not least importantly, financial
markets regulators across the globe are sharpening their
guidelines and legislations to ensure continued oversight
on market integrity and investor protection.
Looking ahead, the continued momentum of DLT and
digital assets looks set to depend on two factors. First is
the sell-side’s ability to successfully engage the buy-
side, using a narrative that is built around the needs of a
portfolio manager (more than an operations head today).
Second is the ability to change industry processes to
realize the benefits that DLT offers.
FMIs globally are facing two
headline challenges: how to
accelerate transformation and
innovation (in settlements and
digital assets) while simultaneously
managing a transition away from
legacy infrastructures.
Settlement acceleration continues
to lead the agenda and will impact
every step of the trade and post-trade
lifecycle from account opening through
to FX and treasury, settlements and
asset servicing.
DLT and digital asset adoption
continues to accelerate with
momentum growing around the
use of DLT and tokens. Industry
knowledge around the operational
benefits of DLT is maturing quickly
and now needs to evolve to include
the benefits for the buy-side.
Key takeaways
1 2 3
Securities Services Evolution 2023 6
The central theme of this year’s whitepaper revolves around the volume and diversity of change that market
participants are facing around the world. This change centers on three broad areas:
• FMI transformation: Significant change pressures being felt by financial market infrastructures across the world to
manage a growth agenda during a phase of major technological transition (and removal of legacy platforms).
• Settlement transformation: Preparations by all profiles of global market participants for accelerated settlements in the
US and Canada (transitioning in May 2024) and more to follow — giving rise to a new, real-time target operating model.
• Digital assets and DLT: Adoption and live deployment of digital assets (including crypto-currencies) as well as
tokenization projects (digitizing traditional securities), building on the increased optionality that DLT offers each firm.
Introduction
Methodology
In order to deliver global and highly relevant insights on the future of securities settlement across Asia-Pacific, Europe,
North America and Latin America, this whitepaper draws on two core sources of qualitative and quantitative expertise.
1) Quantitative: In May 2023, Citi Securities Services collaborated with the ValueExchange to run an online survey of 483
individuals around the globe, including FMIs, custodians, broker-dealers, investment managers and institutional investors.
2) Qualitative: In June and July 2023, a total of 12 FMIs and industry participants (from all regions and profiles)
participated in in-depth interviews, to share their specific insights and experiences. FMI representatives included
exchange and depository leaders; while industry participants included broker-dealers, fintech providers and a taskforce.
1a. Market participant breakdown 1b. Geographical breakdown
Asset manager 12%
Bank 53%
Broker-dealer 10%
Custodian 12%
Institutional investor 14%
North America 42%
APAC 26%
EMEA 24%
Latin America 9%
Securities Services Evolution 2023 7
What is driving the FMI agenda today?
“The role of a CSD is significantly evolving. A
CSD’s value is not just about their own services
and managing their infrastructure, it’s also
about how they add value by reinforcing and
supporting the market ecosystem.”
Ivan Nicora, Head of Investor Services, Euroclear
The changing role of CSDs
The CSD mandate has transformed in the last decade.
As initiatives such as accelerated settlements and
DLT/blockchain have evidenced, progress can be
easily achieved when viewed only at a CSD level but
market adoption often proves to be significantly more
challenging. The deployment of a new blockchain in a
market or a move to T+1 settlements may require only
minor system changes at CSD level, but a successful
market transition depends on readiness across the
entire, global investment ecosystem.
In this context, CSDs have become ecosystem managers —
facilitating market progress and innovation by leveraging
their connectivity at the heart of the securities industry.
This means a shift in the CSD business model that now
includes much more active market engagement, two-way
feedback and expertise on global regulations.
It also means wider engagement than ever before
— as awareness of the importance of issuers and
investors grows. Practical experience shows that both
constituents are part of the ecosystem now and are
central to the CSD discussion.
Accelerated settlements lead the agenda
The strongest example of this ecosystem role today is the
global focus on accelerated settlement — the single largest
area of focus across all FMIs and participants globally.
This was also noted in our survey where 24% of market
participants ranked accelerated settlements (to T+1) as the
most significant change in the post-trade space based on
impact of their business. (see Figure 2a) This is followed
closely by replacement of FMI legacy technology platforms
(14%) and adoption of digital assets (13%).
2a. Most significant changes in post-trade today — based on impact to business
Increased shareholder participation
and governance
10%
Settlement discipline (CSDR)
10%
Adoption of APIs and bespoke bilateral
channels
9%
Adoption of new standards
8%
Corporate action automation
6%
WHT refund automation
6%
24%
Accelerated
settlements
(to T+1)
Replacement
of FMI legacy
technology
platforms
14%
Adoption
of digital
assets
13%
% ranking each option as #1. Percentages
might not add up to 100 due to rounding
Securities Services Evolution 2023 8
“T+1 is very relevant for us in Mexico as
approximately 50% of what is traded on the
exchange in Mexico is related to foreign securities.
We are aligning ourselves with the US just as
we did when T+2 went live in 2017 and will be
adopting T+1 simultaneously with the US.”
Roberto Gonzalez Barrera, CEO, Post-Trade Division,
Grupo Bolsa Mexicana de Valores (BMV Group)
After India’s move to T+1 in the first quarter of 2023, the
domino effect has begun in North America with the US
confirming their transition date (May 28th 2024), prompting
a move by Canada (May 27th 2024) and most likely, by
Mexico around a similar date in order to avoid alignment
issues with the US market. Similarly, the UK’s “Accelerated
Settlement Task Force” has identified dislocation and
alignment issues at the centre of its evaluation. With 89%
of market participants expecting settlements in their own
markets to accelerate in the next five years, there is clearly
an expectation for this wave to continue well beyond the
markets scheduled to move in 2024 (see Figure 3).
Experience to date in India, the US and Canada has
shown that accelerated settlement is far from an FMI-
only issue though. Nor is it just a settlement issue.
T+1 preparations so far have underlined the critical
importance of participants working as a network to
“get it right the first time” as trades move from the
middle office, to treasury, FX, settlements, securities
lending and asset servicing teams. As the section below
explains, the transition to shorter settlement cycles is
also evidencing the critical importance of time-zones,
funding cycles and offshore regulatory regimes in
complicating transition in any global market.
Replacement of (FMI) legacy technology
“We have a generational challenge in the CSD
business: to manage a safe transition to new
platforms.”
Kristine Bastøe, CEO, Euronext Securities Oslo
2b. Top three changes — Based on impact to business (by region)
24% 21% 29%
16% 15% 12%
16% 12% 11%
Accelerated
settlements (to T+1)
Accelerated
settlements (to T+1)
Accelerated
settlements (to T+1)
Adoption of digital
assets
Replacement of FMI
legacy technology
platforms
Increased shareholder
participation and
governance
Replacement of FMI
legacy technology
platforms
Adoption of APIs and
bespoke bilateral
channels
Adoption of digital
assets
EMEA APAC NAM
Securities Services Evolution 2023 9
While managing and driving ecosystem change, CSDs
are also faced with a difficult balancing act: How to
drive innovation in settlement cycles and digital assets
and other areas, while managing inevitable, large-
scale, market-wide technology transitions away from
legacy systems. 14% of the world’s post-trade systems
are getting old but as ongoing examples in Australia,
Canada, Hong Kong and the USA continue to show,
changing them is a considerable task.
Regulatory considerations and the extremely
interconnected nature of settlement systems have
meant that CSDs have often shied away from replacing
or managing their legacy technologies, leaving us
today with an increasingly acute problem. They want to
use their core systems to grow into new asset classes
and capabilities, but they are aware that those core
systems are going to have to be updated very soon.
Legacy platforms are at minimum a hurdle as they
slow innovation and draw in additional time to manage.
When overlooked, they can be a blockage to future
innovation and market growth.
Timeline
“With much of our technology based on local,
self-built platforms, we knew it was time to
change. In moving now to a new platform
across the entire post-trade space, we can
move quickly towards international standards
and automation for our participants”
Roberto Gonzalez Barrera, BMV Group
But the best-practice roadmap and transition plan are
far from clear. “Built like tanks”, many FMI systems
are old but dependable, causing many organizations to
defer change year by year in response to participants’
asking, “If it’s not broken, why are you trying to change
it?” High numbers of involved parties can also make
roadmap planning and testing highly complex — as can
local complexities in markets where individual accounts
are maintained. For example, SGX shared that they are
constantly dealing with new challenges and intricacies
pertaining to its retail facing depository services.
India: T+2 to T+1
January 27th 2023
UK: T+2 to T+1
Accelerated Task Force established
and due to deliver findings in 2024
Australia: T+2 to T+1
Ongoing market
consultations
Philippines: T+3 to T+2
August 24th 2023
Mexico: T+2 to T+1
May 28th 2024
(pending confirmation)
Canada: T+2 to T+1
May 27th 2024
USA: T+2 to T+1
May 28th 2024
Securities Services Evolution 2023 10
With several markets struggling to manage a timely
and orderly transition today, the costs and implications
of failure (in prolonged testing, continuing change
management and roadmap planning) are increasingly
evident — generating increasing resistance to change
at a time when it is increasingly inevitable. FMIs need
to ensure they find the right transition path today in
order to avoid market disruption and to reduce the trust
placed in them by their participants.
“There are so many opportunities for us to
improve the value that we add — through
shorter settlement cycles, revised operating
procedures and through new, digital products
— but the key question is how we can retain our
role as an agent of trust in the industry?”
Dr. Pakorn Peetathawatchai, CEO, Stock Exchange of Thailand
Digitization: A new role for FMIs
As market participants continue to focus on digital
assets with increasing momentum in 2023, the role of
FMIs in facilitating innovation in this space is evolving.
Early experimentation by FMIs has largely focused on
transforming specific asset classes: either by bringing
new asset classes (such as bonds or mutual funds) into
a digitized CSD structure; or by transforming existing
(equities) marketplaces. As banks and broker-dealers
have continued to issue greater volumes of digital
assets themselves, the need for a regulated player
to aggregate and facilitate liquidity across different
asset pools has become clearer. Who is going to bring
together the multitudes of micro-liquidity pools that are
forming for digital assets?
In response, it appears that FMIs have taken on a
new role in digitization in order to provide a common,
industry platform, in a regulated environment that the
market can use to build applications and processes on
and, in doing so, aggregate liquidity.
Securities Services Evolution 2023 11
This is a distinct change from previous models of
using DLT as the basis for (centralized) FMI processing
platforms — and is designed to remove friction between
participants while leveraging industry scale. By looking
to empower all levels of market participants (instead of
focusing on disintermediation potential), today’s CSDs
are charting a new path for digital assets.
Shareholder governance and participation
“How can we keep the power and efficiency of
the omnibus account structure while also creating
the transparency and connectivity needed for
investors and issuers to communicate seamlessly?”
Ivan Nicora, Euroclear
Inherent in the shifting role of CSDs towards managing
market ecosystems is also the growing importance
of connecting issuers with investors more effectively
and transparently than ever before. In a world where
institutional investors can be given only 3 to 5 days
to respond to proxy voting notifications
, the existing
infrastructure is clearly sub-standard in many markets
and not ready to meet the increasing ESG-driven
demands of asset owners (especially in the US and
Latin America, where shareholder participation and
governance is the second biggest priority for market
participants). But with a growing number of institutional
and retail investors looking to take moreactive roles in
the management of the companies where they invest,
the pressure on the intermediary market (including
CSDs, custodians and broker-dealers) is to facilitate
better, faster and clearer shareholder governance
through proxy voting and tax reclaims.
This pressure is driving two main changes: First is the
emergence of new, collaborative, technology platforms
(such as Proxymity) aimed at fixing the plumbing and
negating the problems that omnibus accounts create (in
obscuring share ownership). The second is an increasing
friction driven by a lack of clarity around who “owns” the
relationship with issuers today in the post-trade space
— is it the CSD or the Issuer Agent or someone else?
Put together, these changes are leading to a growing
proliferation in operating models (e.g. CSD-managed
platforms in the US or South Africa; versus collaborative
platforms in the UK and Ireland) and risk diluting the
ability to respond to investors’ growing needs.
Trade-offs: Corporate action automation
“We cover securities from 25 countries, where
the creativity of corporate events is triggering
a significant custodial risk for us.”
Roberto Gonzalez Barrera, BMV Group
And what about corporate actions? In a world of
varying, urgent priorities, are they a natural casualty in
the need to manage trade-offs in the project agenda?
Fortunately, not. Notable progress has been made in
facilitating corporate action automation improvements
of over 80%
3
in such markets as Australia, India and
Switzerland, showing that change is now possible. And
as more markets facilitate these levels of improvement,
the pressure from global investors to see standardization
of messaging and processes across multiple markets is
increasing. Cross-market standardization is emerging as
a key driver behind asset servicing standardization — to
avoid making it harder for people to participate in one
market than in others across a region.
But these change projects have also highlighted marked
obstacles in driving and managing change. Increasingly,
issuer agents are at the center of the discussion and
need to be brought into change discussions, often
for the first time. Local market “uniqueness” in
practices needs to be accommodated — as does the
continuing innovation of issuers in their corporate event
structures. And depository participants need to be
given a clear path to benefit from changes — overcoming
the inertia of established messaging formats and
processes that will need (costly) revisions.
With many CSDs continuing to drive automation in this
space (in Europe, US, Canada, South Africa,
4
Hong Kong
and Singapore), corporate actions don’t appear to have
fallen off the agenda yet.
“Standardization is becoming a key driver for
us in how we deal with and attract foreign
investors. We have to avoid a situation where it
is harder for investors to trade in our markets
than in other European markets — and that is
why we’re investing heavily in this space.”
Kristine Bastøe, Euronext Securities Oslo
Securities Services Evolution 2023 12
“This is not about interoperability, we are creating a new, single market with
more liquidity and more opportunities for global investors.”
Juan Pablo Córdoba, CEO, Colombia Stock Exchange
What is happening?
In 2024, three markets look set to realize a major milestone in global FMI cooperation. When the stock
exchanges of Colombia, Chile and Peru go live as a single trading venue, they will be bringing together
three FMIs, across three regulatory jurisdictions, in what is one of the most ambitious change projects in
the world to date. Under this scheme, Colombia Stock Exchange and Santiago Stock Exchange will each
control 40% of the holding company, with Lima Stock Exchange owning the remaining 20%. While some
have attempted similar integration projects in the past, this new cooperation looks set to considerably
increase the “investability” of Latin American assets by integrating three markets into a single pool of
liquidity — making it is easier for global investors to trade, clear and settle across the region. For example,
issuers can list in one country, but their shares can be traded in all three markets. With trading, there will
be a single rule book and single matching engine for investors across the three markets.
What has been done so far?
Following the initial announcement of the initiative in 2018, much has already been accomplished
on the path to realization. The project’s holding company is live in Chile (headed by Juan Pablo
Córdoba of the Colombian Stock Exchange); mutual recognition of issuers across the three
jurisdictions has been achieved; and interoperability of settlement across the three CSDs is also
done; interoperability of the CCPs will follow. The path towards integrated trading looks clear.
What lies ahead now is the “consolidation of the real estate” across the post-trade space.
Experience from past ventures has shown that the significant weight and value of integration effort
comes in moving from post-trade integration to consolidation — which is why the next step is the
creation of a single clearing and settlement process for all three markets, similar in principle to the
TARGET2-Securities (or “T2S”) model in Europe. While this may seem like a natural evolution of the
model, management of complexities around cash movements may prove to be challenging.
“This is an opportunity to redesign the entire business logic of three markets.
Consolidating trading is the easy part, the real challenge is clearing and
settlement integration.”
Juan Pablo Córdoba, Colombia Stock Exchange
Creating new opportunities
While this integration is likely to initially benefit equities, it could down the road, be extended to
other asset classes as well, including listed derivatives. Nonetheless, Cordoba cautioned that fixed
income may take time as it continues to be traded mostly on an OTC basis and trading practices
differ between countries.
Once consolidated, the new trading bloc will open up extensive opportunities for participants.
With any new platform comes the chance to streamline and revise market processes — and
also to introduce common standards that can drive greater levels of automation. With liquidity
consolidated into a single venue, opportunities for securities lending and finance become
available. Even transformative ideas such as the use of stablecoins become possible (to manage
currencies outside of current settlement cycles, for example).
A single market for Latin America
Securities Services Evolution 2023 13
But of course no change is easy when it is across multiple markets. Existing, beneficial owner level
account structures in Colombia and Peru (but not in Chile ) will make account standardization difficult.
Equally, global investors’ willingness to change is a key dependency. Being a smaller market than Brazil
or the US means that investors may be less willing to accommodate new market changes straight
away. Finally there is the dislocation risk from global initiatives such as accelerated settlement — where
market participants may demand more structural change at the exact time when stability is needed.
Impact for global investors
This important development means a range of benefits for investors across their front, middle
and back offices. Crucially, liquidity will increase as the market consolidates, creating efficiencies
in access to investments and better pricing, not to mention opportunities in securities finance.
From a usability perspective, investors will also see a standardized user experience for the region,
using the same matching engine, rulebook and support channels for all three markets.
Operationally, global investors will benefit from the unification and standardization of connectivity
across three markets into one. By connecting to a single clearing and settlement platform, investors
will be able consolidate their data connectivity, focus their banking and funding relationships and
remove any issues in managing disparities between the three depositories that exist today.
And this is just the beginning. As liquidity grows, more issuers and market markers will join the
market ecosystem and hopefully create a virtuous circle for years to come.
Operating model for the integrated market
The operating model for the integrated market maintains the institutions in each jurisdiction.
Issuers
Single CCP
Single Trading
Platform
Participants
Same platform. Same processes. Same rules.
Interconnection
Interconnection
Listings
Regulators
DepositoriesTrading
Clearing &
Settlement
Santiago
Stock
Exchange
CCLV
Contraparte
Central S.A
Colombia
Stock
Exchange
Cámaras
de Riesgo
Central de
Contraparte
Lima
Stock
Exchange
New CCP
in Peru
Santiago
Stock
Exchange
Depósito
Central de
Valores
(DCV)
Colombia
Stock
Exchange
Depósito
Centralizado
de Valores
(DECEVAL)
Lima
Stock
Exchange
Comisión del Mercado
Financiero (CMF)
Superintendencia Financiera
de Colombia (SFC)
Superintendencia del
Mercado de Valores (SMV)
CAVALI
Securities Services Evolution 2023 14
“Clearing in Europe is at an inflection point. Since MiFID, we have built
interoperability across Europe’s clearing houses so that we can work with those
that we chose to — not with those that we have to. This now looks set to change —
unwinding all of the hard work that the industry has done.”
Jeff King, Global Head of Custody Product Management, Securities Services, Citi
What is happening?
Since the introduction of the Markets in Financial Instruments Directive (MiFID I) in 2007,
competition in clearing has transformed European trading. As multilateral trading facilities
(MTFs) and clearing houses have proliferated, the interoperability of these venues across
Europe has driven down the cost of clearing from around EUR1 to less than a few cents.
Individual firms have been able to direct their clearing volumes into single venues, achieving
scale in fees and margining to the benefit of investors globally.
Euronext Clearing’s entry in the heart of European trading (as the CCP in Belgium, France, Italy
and the Netherlands) means that these continuing efficiencies of scale may prove hard to sustain.
With the introduction of a “Preferred Clearing” model in these markets, firms will no longer be
able to unilaterally direct their clearing flows to their preferred venues. All choices to direct
clearing away from Euronext Clearing will need to be agreed by both counterparties to the trade
and, if both sides cannot agree or fail to instruct properly, clearing will default to Euronext. All
trades cleared in Euronext will then default to Monte Titoli for (cross-border) settlement in T2S;
with all asset servicing being managed there as well.
Clearing consolidation in Europe
Euronext NV, a pan-European bourse purchased Borsa Italiana from the
London Stock Exchange Group in 2021. The acquisition included the Italian
stock exchange, Monte Titoli (the Italian CSD) and Cassa di Compensazione
e Garanzia (the Italian CCP). This acquisition lays the foundation for a
vertically integrated stack of stock exchange to CCP to depository for a
massive share of exchange traded securities on continental Europe.
In late 2022, Euronext announced the rebranding of Cassa di Compensazione
e Garanzia as Euronext Clearing and the appointment of Euronext Clearing
as the default CCP for all the Euronext exchanges. The change of the default
CCP is a market mandatory switch and will impact all participants, all
Individual Clearing Members and General Clearing Members will need to build
connectivity if they wish to support the Euronext French, Belgian, Dutch &
Portuguese cash equity exchanges. Maintaining links with LCH SA and CBOE
Clear Europe as a preferred CCP will not be enough.
The migration of the default CCP is scheduled in phases with the Brussels
exchange migrating to the new configuration on Oct 23, 2023 followed by
the Amsterdam, Lisbon and Paris exchanges on Nov 6, 2023. We’ve been told
that the Italian market will move to Euronext Clearing’s enhanced technology
platform sometime in Q2-Q4 of 2024.
Securities Services Evolution 2023 15
Differences between interoperable and preferred clearing (cash equity)
I
nteroperability: the choice of which CCP is used to clear transactions, while
the counterparty can select another. I.e. the trade can ultimately be cleared
by two different CCPs.
Preferrable clearing: a trade is sent to the chosen CCP only if both
counterparties select the same CCP. Otherwise the transaction is sent to the
default CCP. However, since order books are anonymous, market participants
are not able to coordinate.
What does that mean for market participants?
“Choice in the preferred clearing model is an illusion.”
Jeff King, Citi
This may appear to be a small change but, in practice, this will likely create a complex P&L evaluation
for market participants as they look to manage additional burdens and risks in their clearing.
On the positive side, the scale of Euronext Clearing’s market reach means that participants
will only have to face two markets (in place of today’s five) — triggering margining efficiencies
and potentially reduced unit costs across the five trading markets.
Yet these efficiencies will need to offset a number of operational challenges and risks. At best,
firms will only be able to identify their clearing venue after the trade (meaning potential delays
to cost projections and inventory management). The failure of counterparties to elect to use
the right clearing house could lead to i) a loss of choice, ii) scale and margin inefficiencies
(through splitting volumes across multiple CCPs) and iii) increased clearing fees (through the
loss of volume-based tiering benefits) for firms in these markets. With very limited cross-border
flows in T2S today, the increase in settlement volumes into Monte Titoli could also create initial
settlement risks as volumes grow through this new and largely untested mechanism.
Most of all, with firms still struggling to come to terms with the impacts of the Central
Securities Depositories Regulation (CSDR), now looks to be an inopportune time to increase
pressures on inventory management and indirectly the risk of settlement failures and buy-ins.
What’s next?
“The die is cast now — but it remains to be seen how market participants will react
to this model. Unfortunately, preferred clearing is the path of least resistance.”
Jeff King, Citi
With initial operating details only now becoming available, the outlook for the risks mentioned above
is unclear. Increased fails and loss of clearing flexibility are still not inevitable — as participants
could still succeed in coordinating to the point of retaining full control over their clearing — but there
appears to be little chance of cost savings for market participants. While it is too early to tell if and
how costs rise, Euronext Clearing will be the path of least resistance if nothing else.
Securities Services Evolution 2023 16
Settlement Transformation
Settlement transformation today: where are we?
The securities industry is already well into its settlement
transformation journey and the need for timely and
reliable settlements across the global portfolio has been
increasing steadily over the last decade.
But now things look different.
In 2014, the world began T+0 settlements (from Hong
Kong) in China, as the first global equities market to move
to same-day settlements. Since then we have seen the
world’s leading global markets accelerate their equities
settlement cycles from T+3 to T+2. Last year, the European
Union saw the introduction of settlement penalties under
the Settlement Discipline Regime of the Central Securities
Depositories Regulation (CSDR). This year has seen India
move to a T+1 settlement cycle, in what was the latest in a
continuing wave of changes to settlement operations.
In this context, the move to T+1 settlements in Canada and
the US (on May 27th and 28th 2024, respectively) might
appear to be just another — albeit major — step in the
ongoing global transformation of settlement processes. But
as the entire world moves closer to the target live date, the
scale of this latest move is becoming clear.
Those in the US and Canada are faced with the need
to perform the majority of their middle, back office
and funding activities on a trade-date basis for the
first time. Firms based in Asia-Pacific and Europe will
effectively be dealing with their US and Canadian
settlements on a T+0 basis for the first time — creating
operational risks and funding pressures that are entirely
new. This transition to T+1 crosses a major threshold
that will determine how global settlement operations
are run for the foreseeable future.
The move is also creating new dislocation risks and, with
them, pressure on more markets to follow suit. In order
to avoid unnecessary funding gaps (driven by different
settlement cycles) with the US market, Canada will also
move to T+1 settlements in 2024 and Mexico is likely to
also transition around the same time. Meanwhile the UK’s
Accelerated Settlement Task Force also sees dislocation
risk as a key theme in its ongoing evaluation of a T+1
move (due to be completed in 2024), as it is in other
markets (such as Australia
5
) where T+1 consultations are
just starting. The domino effect has begun.
3. Expected settlement timeframe in major markets in five years
...but atomic settlement will take time
In 15 years
27%
In 10 years
13%
In 5 years
11%
2021
22%
44%
16%
18%
2022
16%
51%
14%
20%
2023
57%
32%
5%
6%
What do you expect to be the prevailing
settlement timeframe for equities in
your major markets? (% selecting atomic
settlements per time frame)
Within the following time frames, what do you expect to be the
prevailing settlement timeframe for equities in your major markets?
(% responding to the five year time frame)
89% of the
market now
expects to
move away
from T+2 in the
next five years
T+2
T+1
T+0
Real time, immediate
atomic settlement
Securities Services Evolution 2023 17
“In evaluating the path towards a potential T+1, we
have identified two categories of issues: alignment
(i.e. the challenges of not being aligned with the US
and/or the EU) and operational issues.”
Charlie Geffen, Chair, UK Accelerated Settlement Task Force
Accelerated settlements — it will always
be T+1 somewhere
There is little doubt that accelerated settlement will
continue to lead the global change agenda for the near
future. Since our first whitepaper was published in 2021,
expectations around the adoption of T+1 as a standard
settlement cycle across global markets have grown, to the
point where 89% of market participants now expect
their own markets to move to T+1 (or even T+0) in the
next five years (see Figure 3).
If this wave of settlement transformation began over
a decade ago, it does not appear set to end with T+1.
Beyond T+1, there is also a growing belief that atomic
(or instantaneous) settlement will become a core part
of our market activity in 15 years, with 27% expecting
this mode to become the prevailing time-frame for their
major markets by then. While NSCC (in the US) already
settles ~USD 40 million per day on a T+0 basis
6
(largely
for securities finance activities), it is likely that these
trades will accelerate down to mere nanoseconds to
improve settlement certainty and remove risk. This will no
doubt take time (only 13% of respondents expect atomic
settlement to prevail this decade) and require significant
infrastructure investment, but the direction is clear.
Accelerated settlements — no one is
left untouched
The impacts of T+1 are difficult to under-estimate. 77%
of firms expect this move to have a major impact on their
businesses, most of all broker-dealers and custodians.
Across all client types, T+1 means change at every step
of the trade and post-trade lifecycle as seen below.
• Account opening: logging of standard settlement
instructions (SSIs)
• Middle office: allocation of trades on trade date
• FX and treasury: booking same-day FX and managing
funding imbalances
• Settlements: affirming trades on trade date
• Securities lending: managing recalls and inventory
• Record-keeping: keeping records of digital confirmations
• Asset servicing: with the alignment of effective dates
and ex dates for corporate events
Significant impact
29%
Some impact
48%
Little impact
20%
No impact
3%
4. Expected impact of a shortened settlement cycle
Only 3% of the market is not
impacted by T+1
Securities lending activity
34% 46% 17%
Funding/margining requirements
31% 50% 15%
Regulatory capital requirements
30% 46% 21%
Trade fail rates
27% 49% 23%
Middle/Back office hand counts
23% 48% 25%
What do you expect the impacts of a shortened settlement cycle to be for your
organization?
3%
4%
4%
1%
4%
Securities Services Evolution 2023 18
It is increasingly clear that preparation for T+1 is an
enterprise effort — not just a settlement problem.
T+1’s expected impacts are equally wide-ranging – and
look set to create a significant P&L impact for for asset
managers, broker-dealers and custodians. With increased
timing pressures around settlements, 27% expect their
trade fail rates to be significantly impacted by the move
to T+1, particularly in the short term (see Figure 4). As
we saw during India’s transition to T+1 earlier this year,
trade fail rates are likely to peak for a period of time as
new processes and procedures take hold. In dealing with
these new processes and increased fails risks, 23% of
firms also expect a significant change in their headcount
requirements as they take on extra staff to provide
urgently needed capacity — meaning a short-term cost
spike that many will have to absorb.
On the positive side, funding and margining
requirements look set to be restructured alongside
regulatory capital requirements (with 30% and
31% expecting to be significantly impacted in each
area respectively), generating a treasury benefit for
depository participants especially (see Figure 4).
And somewhere between an opportunity and a challenge
is securities lending — one of the most strongly impacted
activities across the organization. As 34% of market
participants contend with challenges around recalls,
inventory management and communication, the
opportunities for those that successfully optimize their
flows can be significant — as are the downside risks for
those that don’t. This is covered in greater detail in the
following sections.
Accelerated settlement is a funding issue
For the last three years, market participants have
consistently cited the funding and cash leg of the trade
as being the leading obstacle to achieving shortened
settlement cycles. While regulatory pressures and the
need for clarify around rules has been steadily addressed,
funding is and remains a core challenge.
Impact of T+1 on trade and post-trade lifecycle
Record-keeping
• Digital record keeping of electronic confirmations
• Real-time reconciliation required to support
settlement and lending activities
Corporate actions
• Payment and Ex
Date alignment
Valuations
• NAV calculations
Securities lending
• Recalls
• Fails coverage
Settlement
• Affirmations
• Settlement and
fail management
Funding
• Treasury management of settlement
mismatches
• Cash projection for anticipated funding needs
Foreign exchange
• FX funding
Account opening/
onboarding
• SSI set up and
management
Trade execution
• Equities
• EFTs
• Fixed Income
Middle office
• Confimations
• Allocations
• Exception
management
Securities Services Evolution 2023 19
*Note: The option for segregated accounts and restricted currencies in key markets is a new option this year. Rankings have also been changed into percentages.
In China and India, the management of restricted
currency liquidity (particularly into segregated,
beneficial-owner accounts) has created a host of
operational challenges and a drain on balance sheets
for many depository participants. With many more
beneficial owner markets in Asia-Pacific and globally,
these examples are clear reminders that funding
complexity can end up far more costly than moving
securities between accounts.
As we look ahead to the US and other (omnibus)
markets, almost all of firms see cash clearing as a
leading key area of change needed to facilitate to T+1,
with 98% of respondents citing it as a top three priority.
This core area of focus breaks down largely into two
core areas (see Figure 6).
1) For (offshore) portfolio managers, the question is how
to book, fund and settle any required foreign exchange
trades within the required one-day time-frame (when
most FX markets settle on T+2 today), especially in less
liquid or more exotic currency pairs.
2) For treasurers of fund vehicles, ETFs and depository
receipts (GDR/ADRs), the pressing issue is how to
manage liquidity differences of up to two days between
(e.g.) a T+3 subscription cycle for a fund or GDR, against
a T+1 settlement cycle for the underlying securities.
With interest rates and the costs of overnight funding
rising quickly, these funding gaps are becoming
critically important.
5. Greatest obstacles to achieving reductions in the global settlement cycle
Cash, funding
and liquidity
management
Legacy
technology
Lack of
harmonization
of industry
standards
Payment and
settlement
infrastructure
operating hours
Segregated
accounts and
restricted
currencies in
key markets
Market liquidity,
short selling
and lending
programs
Regulation
(and regulatory
clarity)
26%
25%
20%
20%
16%
11%
15%
13%
12%
13%
NANA
14%
7%
6%
11%
14%
15%
22%
25%
16%
6. Key areas of change to faciliate
the moveto T+1
*Due to multiple responses allowed, the percentages do not add up to 100%.
In your opinion, what are the top three key areas of
change that would help your move to T+1? Select three.
2021 2022 2023
Settlement and
trade matching
Securities lending
FX
Cash clearing
Allocation/confirms
Corporate actions
98% 80%
49% 31%
29% 28%
Securities Services Evolution 2023 20
It matters who you are…
“On T+1 in the US, we believe larger sell-side
houses are looking at driving efficiencies from
their current processes by moving from batch to
real-time, for example. Many of the smaller firms
would likely need to redesign their entire operating
models so that they can keep up.”
David Kirby, Executive Director, Americas Relationship
Management & Global Account Management, DTCC
While the steps of a trade are universal for anyone
dealing in securities, the impact of the shift to T+1
settlements vary significantly depending on the profile
and geographical location of the firm.
Existentially-focused as they are on trading and
settlement efficiency, larger US and Canadian broker-
dealers and custodians have been quick to implement the
required changes ahead of T+1 — but are now struggling
to ensure that their customer networks are equally ready
for what is to come in 2024. Their focus has now shifted
significantly in 2023 from internal to external readiness.
By contrast, smaller market participants (wealth
managers and regional broker-dealers) are faced with
new requirements in SEC rules 15c6-2 and 204/2, which
requires electronic record keeping of trade confirmations
— and to transfer their processing away from manual trade
confirmations to digital forms of communication. These
managers’ will need to automate significant parts of their
trade cycles if they are to remove 50% from the time it
takes them to book, clear and settle a trade.
…and where you are
More important than who you are is where you are. Time-
zones matter in the move towards accelerated settlements
and foreign investors are always the hardest hit.
As we experienced first with China equities, investors who
are 12 time-zones away from the market have to define
how they can book a trade or an FX during the middle of
their night. Next year’s move to T+1 in the US and Canada
is demonstrating this same challenge in reverse. While
domestic market participants contend with an acceleration
towards 7pm allocations and 9pm confirmations in their
local time zone, European based firms will have to be
operational up to 3am (Central European Time), for
example. As shown in the diagram below, implementation
of T+1 will mean financial institutions will have 16.5 hours
less time to process allocations; 14.5 hours less time to
process affirmations; and 15.5 hours less time to process
securities lending transactions.
According to the Association for Financial Markets in
Europe (AFME), losing one day in the settlement cycle
does not simply mean having 50% less post-trade
processing time, adding it is closer to 83%.
7
AFME also
noted that trade settlement teams will only have two core
business hours between the end of the trading window
and the start of the settlement window compared to 12
core business hours in a T+2 environment.
How to be operational during these extended hours is
a simple question that entails huge complexity — given
that firms’ funding, operations, issue-management and
authorization processes all need to be revised to cater
for a new 24-hour operating cycle. In many cases, this
can lead to a fundamental re-evaluation of operating
models (including offshoring, night-desks, outsourcing,
etc.) as well as significant market innovation (i.e. HKEX
Synapse in Hong Kong).
Making this question even more complicated is the key
role that global investor regulations play in defining the
choices available to global firms. European funds (covered
by the UCITS V regulation), US (“40 Act” or 17f-5) funds
and US Pension funds (covered by ERISA) are all subject
to stringent regulations that limit fund managers’ ability
to cater for global changes — by limiting cash or credit
exposures, for example, or by requiring evidence of best
execution on FX trades where possible. In each market
move towards accelerated settlement, these rules and
regulations quickly become paramount considerations in
investors’ action plans.
Given their significant role in providing liquidity to most
markets, foreign investors are a core constituency whose
unique considerations need to be understood in every
market move.
“Foreign investors are critically important to our
markets. We need to adopt global best practices
and innovative solutions to remain competitive.”
Roel A. Refran, Chief Operating Officer,
The Philippine Stock Exchange, Inc.
Securities Services Evolution 2023 21
The T+1 journey: building a new target
model for accelerated settlements
“Taking a market-by-market approach to
T+1 readiness is likely going to cost more in the
longer term — as every market moves, the costs
are going to rise exponentially. It’s key that the
industry takes a strategic approach to this.”
David Kirby, DTCC
As settlement acceleration becomes the global norm,
the “best practice” action plan towards readiness is
becoming increasingly consistent. First focus on clients
and counterparties; followed by in-house platforms and
processes; and then evaluate your staffing and location
strategy. This is consistent with this year’s survey results
where 69% of market participants are focused on
automating and/or standardizing client communications
(as a top three priority), followed by 64% who are looking
to upgrade or replace technology platforms. Internal
process automation was third on the list followed by
various staff considerations (see Figure 7).
Global timing impact
EMEA US hoursAPAC US hours
T+2 Settlement Cycle
NYC 12am
Trade Date 12:00pm
3:00pm T+2
DTC Settlement Deadline
3:30pm T+1
Sec Lending
11:30am T+1 Affirmation
and Allocation
9:30am
Market Open
4:00pm
Market Close
London 5:00am
Tokyo 2:00pm
*Trade Occurs: Citi E2C generates
settlement instructions
EMEA US hours
Source: Citi
APAC US hours
Key Time Loss
Allocations : -16.5 hours
Affirmations : -14.5 hours
Sec Lending: -15.5 hours
* Citi E2C is a supplementary
broker-dealer service which enables
the streamlining of Citi trade to Citi
settlement platforms near real-time
** Affirmations equals ID settlement
*** Industry best practice on recalls
**** Both CNS and regular non-CNS trades
T+1 Settlement Cycle
NYC 12am
Trade Date 12:00pm
7:00pm
Allocations
3:00pm T+1
DTC Settlement Deadline
9:30am
Market Open
4:00pm
Market Close
12:00am
T+1
London 5:00am
Tokyo 2:00pm
8:45pm — Client Instruction of ID****
9:00pm — Affirmation (ID) DTC**
11:59pm — Sec Lending Recall ***
*Trade Occurs:
Citi E2C
generates
settlement
instructions
2:50pm
T+1 Client Trade
Instruction for
non-ID
Source: Citi
Securities Services Evolution 2023 22
Faced with multiple transitions in the near future, it is also
clear that that firms can not afford to prepare for each
market transition individually — meaning that they need
to be building towards a single, accelerated settlement
operating model that is bigger than any one market.
Forming these considerations into a single and scalable
journey is core today.
Clients and counterparties: Education and standardization
The client and counterparty engagement begins with
investor education. Does everyone understand what is
required of them and what the downsides are of failing
to prepare? With every technology and process change
carrying a project cost, it is critical that everyone be armed
with the facts and justifications as early as possible — most
often two to three years ahead of a planned market change.
Next is the automation and standardization of client
communications. Often supported by global standards
bodies (such as SWIFT and FIX) and facilitated by industry
associations (ASIFMA in the case of India’s T+1 move), the
definition of market-wide norms for the format and timing
of trade instructions is an essential step in driving STP
rates and removing points of risk. Since our whitepapers
began in 2021, the use of standards has grown steadily
in importance to market participants, with 11% citing the
lack of standards as a core obstacle to T+1 success in 2021,
rising to 15% in 2023 (see Figure 5).
Within the firm, this automation effort can be supported
by reviewing existing error queues across the trade
cycle today — to identify consistent issues with specific
counterparties or processes. What causes problems in a T+2
environment will cause greater problems under T+1 and so
these issues and error queues are a great starting point.
Equally, automation needs to be supported by clear client
communications around service standards. Several FMI
interviewees have highlighted the importance of clarity
and of ‘red lines’ in discussions with clients — helping to
define what will and will not be offered post-transition to
shorter cycles and to reduce reliance on ‘best efforts’.
Internal platforms and processes: Trade date processing
“As settlement times have accelerated, the
legacy systems and processes have come
under increasing pressure. It is clear that post-
trade frictional costs are too high and a move
to T+1 will provide a catalyst for the significant
investment and change that will be required.”
Charlie Geffen, UK Accelerated Settlements Task Force
7. Action taken to prepare for T+1 in the US & Canada
Automating/standardizing
client communications
69%
Upgrading or replacing
technology platforms
64%
Internal process automation
No action being taken
55%
Moving existing staff
to new time-zones
32%
Hiring new FTE
Systems
Clients
Resources
18%
5%
What are you doing to prepare for T+1 in the US/Canada? Please select all that apply.
Due to multiple responses allowed, the percentages do not add up to 100%.
Securities Services Evolution 2023 23
The upgrading of existing legacy technology was a standout
priority in 2022 for 36% of respondents — and a key enabler
of a successful transition to accelerated settlements (see
Figure 8). Ensuring that our ageing, (single) batch-based
platforms can manage the transition to multi-batch real-
time processing is critical if the majority of trade-related
activities are to be managed on trade date.
Yet as we move closer to the market transition date,
new, tactical technologies — notably artificial intelligence
(AI) and robotic process automation (RPA) — are a
growing component of firms’ abilities to accelerate their
settlements. For example, AI can identify data quality
problems, remedy payment issues or manual errors
and even eliminate manual touch points and automate
reconciliations. AI has also been used in collateral
management to provide predictions on price, risk and
liquidity. Securities settlements are another area where AI
tools could bring disruption — custodians are already using
AI to predict whether a trade will fail in order to remediate
potential problems throughout the transaction lifecycle.
Quick to deploy and with programming resources available
today, these solutions have steadily become the preferred
T+1 readiness tools for 60% and 42% of firms today (when
asked to select their top three priorities respectively).
Given that it can often take more than a year to plan, test
and implement a major system transition, many firms are
now starting to shift from “strategic planning” to “tactical
readiness” (see Figure 8).
Similarly, the use and deployment of platforms on the
cloud
is also an increasing enabler to the T+1 transition,
growing steadily in importance to being a top three
priority for 54% of respondents this year. In providing
flexibility and quick scale across development, testing and
live operations, cloud-based platforms are increasingly
becoming the norm for organizations that can successfully
transition — as a foundation to more agile and speedy
system development in the coming year.
Alongside systems comes process — primarily which
processes can be moved from T+1 (today) into overnight or
T+0 processing. In order to update inventories and
reconcile positions faster and more accurately, firms
need to focus on the removal of paper-based processes
(such as trade instructions or confirmations) and manual-
checks (four-eye checks, issue handling and approvals)
that add risk and latency to procedures.
Participants are not the only ones who are changing to
facilitate accelerated settlements. With the T+1 cycle putting
significant pressure on time-critical and overnight processes,
FMIs are changing their processing and cut-off times. New
solutions to facilitate automated straight-through-processing
in trade processing, recalls and borrowing (for example,
DTCC’s Match to Instruct and HKEX Synapse) are now being
offered to market participants. Standing at the heart of the
industry, a FMI’s role in innovating to solve for accelerated
settlement is core to each market’s success.
DLT
24%
33%
AI/Machine Learning
14%
60%
Cloud
17%
54%
36%
53%
Upgrade of existing
infrastructures
APIs
Robotics
9%
42%
11%
32%
8. Critical technology for a smooth transition to T+1/T+0
2022 2023
What technology will be critical to a successful transition to T+1/T+0? Please select all that apply.
Due to multiple responses allowed, the percentages do not add up to 100%.
Securities Services Evolution 2023 24
People and location strategy
Finally comes people. Recent research from the
ValueExchange
8
has highlighted that 53% of European
firms are expecting to transition their staff to
continental America (both West and East coast) in order
to help manage time-critical processes around FX booking
and trade affirmations without having to resort to night-
desks. The effects of T+1 will also be felt disproportionately
by Asia-Pacific based firms — Alex Lee, Head of Global
Deposit & Settlement Team at Korea Securities Depository
shared in a related Citi article “T+1: A Race Against Time”
that in preparation for T+1, they will be changing their
global staffing resources and will also be requiring some
of their staff to start working night shifts.
Elsewhere, international clients are increasingly embracing
the “follow the sun” model, whereby personnel are
deployed to multiple post-trade locations across the world.
In this instance, some global firms are seconding staff to
the US ahead of T+1. DTCC’s Kirby shared that he believes a
growing number of European buy-side firms are currently
or likely to send operations teams to New York, while one
Canadian provider had shifted some of its operations
personnel from Toronto to Vancouver so it can support
Asia-Pacific based clients in a more time-zone friendly way.
What if I do nothing?
Preparing for the shift to accelerated settlements is often
seen as a choice — not an obligation — particularly for
offshore investors. After the US’s transition to T+1, for
example, only SEC-regulated firms will be obliged to follow
the new market rules, leaving overseas firms unclear on the
case for expensive platform and process changes. “Surely
the custodian and the broker can handle this for me?”
However, there are commercial and contractual reasons for
T+1 compliance, wherever you are in the world. In China and
India, no-fails regimes mean expensive penalties for any
firm that triggers a failed trade and mandatory buy-in. In
the US, an investment manager’s failure to affirm trades will
trigger an additional charge for each settlement processed.
It will also put their broker-dealer into conflict with the
SEC’s market rules, meaning an increased risk of broker-
dealers declining to trade for problematic investors.
The downside risk of doing nothing is evident and
compelling, regardless of your regulatory jurisdiction.
What lies ahead?
“This is an ecosystem play and we will succeed
or fail in T+1 together. Every participant in
the trade cycle needs to take an active role in
driving readiness — from the beneficial owner
through to the marketplace.”
Steve Everett, Head of Business Strategy and
Innovation, CDS (The Canadian Depository for
Securities Limited), TMX Group
The US, Canada and Mexico will soon be moving into
testing cycles, offering depository participants and
their investor clients the opportunity to test and verify
readiness. Being certain of readiness for T+1 will become
the new, minimum standard for all firms.
In parallel, market consultations on accelerating settlement
will continue across several key markets (including the
UK and Australia), creating an opportunity for specialists
across the buy- and sell-sides to share their concerns, plans
and challenges — regardless of where they are in the world.
Securities Services Evolution 2023 25
Securities Services Evolution 2023 26
“Securities lending is going to be the solution
to facilitate T+1, not the problem. We’re going to
need more securities lending liquidity if we are
going to settle trades faster — and those who can
manage their inventories in real time will have a
significant advantage.“
Anonymous
T+1 and securities lending: What is the link?
Securities lending and borrowing is one of the single-most
impacted area by the move to T+1, across the entire trade
cycle, with 80% of firms seeing significant to some impact
on their businesses in this space (see Figure 9).
As a worst case, uncertainty around securities movements
may drive both asset owners and brokers to reduce their
lendable inventories after T+1, creating a significant drain
on market liquidity. Asset owners could be deterred from
lending by increased settlement risks on their portfolio
trades, while brokers could withhold too many securities
from lending (i.e. over-buffering) in an effort compensate
for potential shortages in delivery, driven by challenges in
recalls. By contract, a best case could see those with (real
time) certainty of inventories turn the T+1 transition into a
major co
mmercial opportunity.
Where are the potential challenges?
In the US and Canadian context, the risk of impact is
divided into two core groups. Those participating in the
US onshore/domestic lending market (typically lending
USD securities for cash collateral and settling on T+0 on a
DVP basis) are unlikely to see significant pressures after
the shift to T+1. Those engaged in the offshore lending
market (lending USD or CAD securities against securities
as collateral, and settling on an free-of-payment (FOP)
basis on T+1 or T+2) look set to struggle due to the
manual nature of their lending and recalls processes today.
On the lending side, existing indemnifications (by agent
lenders to asset owners) should protect asset owners
from any potential liquidity implications of the T+1 move
and hence avoid any discouragement from trading — and
from deriving the important investment returns from
lending. However, these same pension funds may opt
to reduce their lending in certain areas where there is
perceived to be an increased settlement risk (and hence
potential for any negative portfolio impact).
On the broker side, the management and processing
of recalls poses significant risks. Recalls are one of
the most manually intensive activities in the securities
lending space today and the risk of errors and delays
will escalate in a T+1 regime as firms struggle to
communicate, book and reconcile their positions at the
required velocity across the market. These elevated
risks are compounded by the fact that each recall may
entail several settlement legs — meaning an exponential
growth in risk across a multi-leg settlement. Looking
ahead, the timing of recall bookings is also likely to
prove critical, in order to ensure that stocks can be
returned in good time for settlement to continue.
T+1 and securities lending
9. Expected impact of a shortened settlement
cycle on securities lending activity
Significant impact 34%
Some impact 46%
Little impact 17%
No impact 3%
Securities Services Evolution 2023 27
“We already deliver stock loans on T+0, but you
have to remember that everything always gets
sold off — and that means a new returns process
when we accelerate settlement cycles.”
Anonymous
There is also a risk of imbalance for borrowers looking
to recall stocks from hedge funds — who may be using
lent stocks to cover short-selling activity. With limited
penalties applied to a failed trade under the current US
regime, hedge funds may opt to decline a recall request
because the economic case for doing so is compelling
(i.e. significant returns versus very limited penalties).
Where are the potential solutions
and opportunities?
While the lack of certainty around settlement movements
may be a challenge, those who can ensure maximum
visibility of their inventories in real time will be able to
benefit from the T+1 opportunity in several ways.
With most firms running on batch processes today,
critical inventory can be tied up in processing delays.
By transitioning to real-time infrastructures,
brokers can not only avoid reducing supply, they can
significantly increase their lending activities, provided
that they can communicate (and hence recover supply)
in real-time with counterparties; and then book the
recall instantly in their platforms, updating their
lendable inventory straight away. With speed and
certainty, these brokers will be able to increase lending
and borrowing at a time when others can’t.
Building on the above, those firms who can manage
their provisioning risks on a real-time basis will be
able to avoid unnecessarily over-buffering throughout
the day and hence increase the amount of stocks
available for loan. Those willing and able to manage
partial recalls will also have an advantage in avoiding
failed recalls, although the timely and automated
management of the client authorization leg will key.
Finally, those with inventory (and low settlement risk)
can begin to provide ‘fails coverage’ solutions to the
market — providing coverage for otherwise expensive,
failing trades.
What lies ahead?
Unfortunately, the highly interconnected nature of the
securities lending market today means that no one firm
can succeed entirely on their own. While technologies
exist to support a significant improvement in settlement
certainty, the ability to move to real-time processing
will depend on the timely, ecosystem adoption of core
platforms in the US and further afield if firms are to
deliver for the move to T+1.
As a core area of impact for the T+1 transition in the US
and Canada, securities lending is the center of much
industry discussion today (notably at the RMA, CASLA and
ISLA). These discussions will continue to center on driving
industry-wide clarity around:
• Recall notification timing and deadlines
• The communication/response process for recalls
• Settlement standards, including the management
of partial recalls
“T+1 must not end up deterring people from
providing liquidity. If accelerated settlements
mean that there are fewer lenders available, then
we’ve done a bad job as a market. We must use
this as an opportunity to create an environment
that encourages lending.”
Anonymous
Securities Services Evolution 2023 28
DLT and digital asset engagement has
continued to grow
“There is a very clear trend that DLT and smart
contracts are coming into our post-trade world
— so let’s start working out the capabilities and
limitations of these tools today.”
Derek Neo, Head of Digital & Depository Services, SGX Group
The last year has seen the DLT and digital asset landscape
transform in several key ways. News of crypto-exchange
defaults and high-profile project failures (most notably
FTX) have dominated the world’s headlines, leading to a
belief that “the DLT narrative has far exceeded delivery” to
date. Faced with evident failures and relatively few success
stories, talk of the ‘crypto winter’ and the ‘DLT bubble’ have
become commonplace.
Yet, the global focus on DLT has continued as we move
closer to commercial execution and scale. Leading digital
initiatives (such as BondbloX, Deutsche Boerse’s D7, SDX,
HQLAX and Broadridge’s DLR) have begun to accumulate
volumes and to prove the validity of the model in key areas
of our industry.
9
Billions of (US) dollars of value are now
being managed on DLT, across a combined ecosystem that
includes over 20 of the world’s leading financial institutions.
The balance of these two conflicting narratives has been
strongly positive in the last year, with the volume of firms
working on DLT and digital assets growing from 47% in
2022 to 74% in 2023.
In Asia and Latin America, the conversation has focused
on bringing (institutional) liquidity to the masses; in
Europe it has centered on building a safe regulatory
environment that facilitates growth in all forms of digital
asset; and in North America, banks and investors have
begun evidencing serious returns from tokenization
across numerous asset classes.
The industry is still in the early stages of its maturity
but the last several years of experimentation are now
paying off — giving us a body of experience that shapes a
sharper understanding of the operational benefits of DLT,
its challenges and the best practices that are needed to
drive successful and commercially viable projects. And
of these challenges, the pressing issues that firms face
today are usually not with the technology, but with the
people and processes that put it in place.
Digitization: running at two levels of maturity
The last year has also marked a shift in the parallel
evolutions of digital assets (including crypto-currencies)
and DLT-based projects (including tokenization). Until late
2022, crypto driven development led the development
agenda as firms rushed to provide trading, financing,
custody and asset servicing around crypto. As a result
of these pressures, 38% of respondents are today live
with crypto offerings — well ahead of the 22% using DLT
offerings in a live environment.
The developments of late 2022 have left today’s crypto
landscape divided and slowing in momentum versus
broader DLT-based initiatives. Having been at the
forefront of market development for several years,
crypto momentum in the US has slowed significantly in
the last quarter of 2022. Meanwhile regulators
in Europe, Middle East and Asia have pressed
ahead, embracing the potential of crypto assets and
shaping regulation, such as the Markets in Crypto
Assets regulation (MICA) that can create a safe and
transparent marketplace for these assets in the future.
With speeds and directions of development varying
by region, the net effect appears to be a slowing in
the global momentum around digital assets, with only
32% of firms now in build-out phase (predominantly in
Europe), compared with 44% of respondents working
on DLT and tokens (see Figures 10a & 10b).
DLT and Digital Assets
10. Engagement in digital assets and/or DLT
2022 2023
Is your organization currently engaging in digital assets
(including crypto, NFTs) or DLT?
47%
53%
26%
74%
No Yes
Securities Services Evolution 2023 29
In the world of DLT and tokenization, a small number
of asset classes and activities are quickly proving their
worth as they move into large-scale deployments —
notably in bond issuance, securities finance (including
lending, repos and collateral), mutual fund distribution
and private equity. In each of these areas, the operational
benefits of real-time data synchrony, complex data
models and smart contracts are material — transforming
highly manual, highly networked ecosystems into
coherent data ecosystems.
Beyond these proven areas lies a continuing amount of
experimentation, which is the core objective for 24% of
DLT initiatives today (see Figure 10b). As firms explore the
potential applications of DLT in resolving some of their
most complicated operational headaches, new focus areas
have emerged. While the (OTC product) issuance process
has had much attention, corporate action pilots have also
evidenced benefits in data management and workflow
automation. Custodians and FMIs have begun to use DLT
to bridge the operational gap between ownership and
account structures, providing increased transparency and
reduced risks for investors, while maintaining the benefits
of netting and trade book consolidation. As momentum
continues, so does the sophistication of DLT’s applications.
“DLT helps to make the world a safer place — by
giving full visibility of ownership at a depository
level and eliminating brokers’ book keeping risks.”
Rahul Banerjee, CEO and Co-founder, BondbloX
Using DLT today: is DLT still a banker’s game?
87% of custodians surveyed are actively working on DLT
and digital asset projects today, however only 25% of their
asset owner (end-)clients are similarly active — which begs
the question why three quarters of institutional investors
are still not engaging. (see Figure 10d)
Based on our survey results, the industry’s focus to date
with digital assets and DLT has centered heavily on realizing
operational efficiencies from process transformation, where
more respondents see the technology having a significant
impact. In tokenizing securities, banks and broker-dealers
are focusing on the ‘factory-floor’ processes and on
reducing their costs of production, to the benefit of the
product manufacturers. From an end-investor perspective
however, these reduced production costs mean little. DLT
is generating basis point savings today, but investors are
looking for percentage returns in their portfolios.
Still under-developed is the understanding of the ‘phase
two’ benefits of DLT and digital assets — namely how
they change the fundamental value and liquidity of the
securities that we hold and trade every day. Moving
from simple ‘electronification’ of securities to producing
securities that behave and trade entirely differently,
can open up a new line of benefits for treasurers and
portfolio managers especially. In creating an intraday
repo that has instant and certain delivery (for example),
banks can transform their balance sheets by removing
free-of-payment (FOP) transfers and shifting from
expensive, overnight funding to secured, intraday
funding. In bond issuance, consolidated book-keeping
10b. DLT adoption10a. Digital asset adoption
38% 22%
32% 44%
23% 24%
7% 10%
Currently live Currently live
Building to live activity Building to live activity
Experimental Experimental
No activity No activity
Securities Services Evolution 2023 30
and reduced fr
ictions around settlement can open
bonds up to entire markets
of new retail liquidity. In
the private markets, reduced frictions around trade
settlement can drive secondary market liquidity and
hence improve bid/offer spreads for investors.
How does DLT drive portfolio impact (i.e. through
narrower spreads or deeper market liquidity)? As the
industry begins to answer this question for portfolio
investors or treasurers, market participants and
providers will see the returns on their DLT and digital
asset projects grow exponentially.
10d. Engagement with digital assets/DLT — by segment
Custodian Broker-dealer Bank Asset manager Institutional investor
87%
77%
70%
60%
25%
% of each segment responding
“Yes” to engagement
Post-trade
processing costs
Issuance costs
Bid/offer sprea
ds
Balance sheet costs
Market turnover
Liquidity
11. Impact of a DLT-based market structure
High
Impact
Areas
Medium
Impact
Areas
Significant impact Some impact Little impact No impact
Please rate the extent to which you think a DLT based market structure could impact the following activities?
28% 51% 15% 6%
28% 46% 14% 13%
20% 50% 21% 8%
11% 55% 18% 16%
11% 55% 21% 13%
10% 47% 28% 15%
Securities Services Evolution 2023 31
DLT as an enabler — not a destination
“Many market structure rules (such as denominations
of securities or settlement cycles) are dictated
to us by technological limitations today. DLT and
tokenization means that those limitations no longer
need to apply at a market level — they can be
managed at a trade or account level by choice.”
Rahul Banerjee, BondbloX
As the use of digital assets has grown, so has scepticism
around the securities industry’s ability to really benefit
from innovations such as atomic settlement. In many cases,
these possibilities are considered to be ‘one step too far’ and
unrealistic given the current state of the capital markets.
Importantly, DLT is increasingly about creating the
flexibility of choice in operating models — not dictating
specific features as mandatory. By removing limitations
that have historically dictated how we trade today, each
firm can become more efficient, one trade at a time.
Rather than expecting industry-wide adoption of atomic
settlement, for example, the ability to offer instantaneous
settlement can become a competitive advantage for some.
Those that can offer quick settlement can win by reducing
their balance sheet costs (potentially the difference between
five days of overnight funding for some bond trades and no
funding costs at all) and passing those efficiencies back to
the investor. Equally, those who are able to settle instantly
and avoid counterparty settlement risk will be able to trade
with a wider range of investors than ever — tapping into new
pools of liquidity that were previously off-limits.
“Our role is to improve the liquidity of every asset
class — and fractionalization is a key mechanism
to enable that.”
Dr. Pakorn Peetathawatchai, Stock Exchange of Thailand
The same concept of flexibility and choice also applies
to fractionalization, where central banks and monetary
authorities in Asia
10
and Latin America
11
are growing
market liquidity through the wider distribution of
(government) debt to individual investors — one bond at
a time. The Hong Kong Monetary Authority’s “Project
Genesis” issuance
12
reduced the book-closing period to
one day (from five) and facilitated real-time record keeping
and reconciliations between over 40 wealth managers —
removing major obstacles (and costs) that have prevented
widespread distribution in the past. The efficiencies have
not only reduced unit costs but they have given central
banks the option of using these issuances to also fulfill the
broader objective of financial inclusion by allowing whole
populations to hold their own government debt.
12a. Fastest growth in the digital assets space
Tokenization of public securities
(public equity/debt)
35%
Tokenization of private securities
(private equity/debt)
32%
Tokenization of alternative
assets (real estate/commodities)
12%
Crypto
18%
NFTs
2%
Percentages might not add up to 100 due to rounding.
Securities Services Evolution 2023 32
Tokenization, digital issuance
or smart contracts?
Given the choice of issuing natively digital securities
or tokenized representations of traditional securities,
79% of respondents see their core growth as coming
from tokenization. In the face of continuing challenges
in regulatory and accounting treatment of natively
digital securities, tokenization is surprisingly simple by
comparison. Tokenizing can be like a club in that everyone
only needs to agree on the rules to be a member and
the presence of traditional securities (and cash) gives
providers the option to limit their risks as they build.
But which assets should be tokenized? The sell-side
sees the strongest growth prospects in tokenizing listed
equities and public debt, motivated by the workflow
efficiencies that they can derive in issuance and asset
servicing. 47% of institutional investors, however, see
the private space as the center of their tokenization
focus — looking to DLT to remove friction in private
equities, private placements and private debt to the
point where liquidity improves, transparency grows and
pricing narrows (see Figure 12b). While few providers have
successfully delivered benefits at scale in the private
space, the attention and focus of investors in this area
is a clear opportunity.
Tokenization aside, one of the most compelling and
adopted developments in recent years has been the smart
contract — used today across a wide array of digitization
projects to provide automation even when blockchains are
absent. With many major DLT projects struggling to bridge
the divide between digital and traditional infrastructures,
smart contracts are being used to great effect today,
notably in cases such as HKEX Synapse or SGX’s DLT
project which seeks to transform post-trade workflows
with minimal disruption to core infrastructures.
The funding leg: digital cash is coming quickly
There is a growing belief across the industry that digital
money is maturing quickly, with an overwhelming 87%
of market participants surveyed (versus 72% last year)
seeing them as viable before 2026.
At the center of the digital money discussion are Central
Bank Digital Currencies (CBDCs), where most respondents
expect progress in the next three years. This sentiment
has been consistent year after year. The industry has
accumulated significant experience from multiple global
pilots in the last year, based on projects led by the Banque
de France
13
; Digital Dollar project
14
(in the US), the Swiss
National Bank
15
and the Monetary Authority of Singapore
16
(among others). From earlier domestic pilots, recent cross-
border multi-bank experiments are now providing detailed
insights into how central bank funding can be operationalized
in a digital context, both internally and across entire markets.
In this year’s survey, 52% of market participants expect
CBDCs to be live within three years — providing a robust
and scalable solution to the long-running question of
how to store and transfer value on blockchains. Yet
around one-third of market participants are considering
alternative solutions in the next three years, a significant
jump from last year’s findings. This year, 27% of
respondents are expecting to be live using bank issued
stablecoins within three years, 10% more than a year ago.
12b. Tokenization of private securities (by segment)
Asset manager
36%
Bank
32%
Broker-dealer
27%
Custodian
17%
Institutional investor
47%
Securities Services Evolution 2023 33
Most likely driven by conservative expectations around
central banks’ speed to innovate on CBDCs and/or by the
need to find quick solutions, an increasing constituency
of firms is looking closely at how they can provide the
transparency, liquidity and regulatory acceptance that
investors need in order to form the basis for a scalable
form of tokenized deposit.
The digital journey: best practices emerging
around people and process
With three-quarters of the industry engaged on digital
assets and DLT today, the industry is quickly shaping
an extensive range of considerations that build on daily
successes and failures in moving projects forward. This
emerging best-practice implies several key steps:
1. Business definition: what is the problem we’re trying
to solve and do we need DLT to solve them?
Beyond simply quantifying the problem, today’s digital
asset projects also center on where and how DLT can
provide the right solution. Based on a growing awareness
that DLT is not a silver bullet and that it may be harder
to put everything on a blockchain, there is an increasing
focus on where DLT can play a unique role.
Industry practice so far indicates that this unique territory
is most often in the registry and data-layer. Singapore’s
MarketNode today refers to itself as a ‘digital registry’,
and Deutsche Boerse’s D7 project uses the T2S platform
for settlements, feeding into a digitized registry. In other
cases, what begins as a DLT project can quickly evolve into
a smart-contract deployment.
2. Bu
ilding ecosystems: market engagement is key
The importance of hand-shaking the business case for
change with ecosystem participants has been underlined
repeatedly through projects in the last year — and is a
critical determinant of a project’s success or failure.
And there appear to be no limits to how active this
engagement can be. Stretching beyond simple outreach
to the full devolution of decision-making to ecosystem
members, Equilend’s ‘Digital Transformation Working
Group
17
,’ for example, has been fully empowered to
prioritize issues, select technologies and even vendors. By
engaging the entire ecosystem in every step, DLT solutions
are beginning to evolve with their members’ needs —
instead of being presented as a complete platform.
3. Governance is the key enabler (and obstacle to) success
“The core dependencies for digital asset
adoption today are regulation, accounting
and taxation. It is not all about technology.”
Dr. Pakorn Peetathawatchai, Stock Exchange of Thailand
13. Expected form of digital money to be used to support securities settlement
52%
49%
27%
17%
8%
6%
13%
28%
20232022
Non-bank issued
stable coins
Central bank digital
currency (CBDC)
Bank issued stable coins
Digital money will not be
used to support securities
settlement by 2026
In your opinion, what form of digital money will be used to support securities settlement (in the majority of your
markets) in the next 3 years?
Securities Services Evolution 2023 34
Once in project mode, more than half the respondents
surveyed this year view regulatory uncertainty and
knowledge gaps in their key control functions as one of
their top (three) obstacles to DLT development today —
especially in Europe and North America. As the above
graphic underlines, the ability of people to understand,
quantify and manage the risks of DLT projects is the
standout concern in execution — more than being a
question of technology or performance (see Figure 14a).
In the last year, many regulators have become more
conservative around any project that may have a
connection to crypto assets — creating a gap in the
readiness of markets and firms to constructively engage
on DLT. Luxembourg and Germany have become leading
centers for digital asset projects, owing to their readiness
to engage with market participants, as has Singapore
(where the MAS has actively championed the growth
of digital security ecosystems). With many digital asset
regulations still evolving, this engagement with the
industry is critical in order for all parties to have the
clarity they need to operationalize projects.
The same is true within each organization. One by one, risk
and compliance teams are having to devise new frameworks
today to evaluate and manage digital asset risks and,
as many firms are now discovering, these functions can
become critical blockages in project development if they
are only engaged late in the project cycle.
In both of these cases, the active engagement of
regulators and internal risk or control functions during
the early stages of DLT projects is a necessity — and is a
behavioural shift for many organizations. Answers need
to be worked on together if firms are to avoid the above
delays and risks to DLT projects.
4. Using technology partners to extend reach
With respondents in Latin America and Asia-Pacific
struggling the most to build and reach wider ecosystems
for their DLT projects, several of the FMIs interviewed
have underlined the critical role that partnerships play
in engaging the wider community. Far from looking to
disintermediate market participants, projects at the
Singapore Stock Exchange (SGX), the Stock Exchange of
Thailand (SET) and the Philippine Stock Exchange (PSE)
have all relied heavily on key players (such as wealth
managers) and technology platforms to provide reach and
connectivity into the retail investor base.
In many cases, the target of this outreach has been the
retail digital wallet. Emerging as a new pool of liquidity
across Asia
18
and Africa (in particular), these wallets are
seen as a critical part of the Exchanges’ growth plans.
If their stocks can be held in a digital wallet then they
become accessible to the millions of people today who
already hold (crypto) currencies.
14a. Top impediment to the widespread use of digital assets in the next three years
Due to multiple responses allowed, the percentages do not add up to 100%.
What are the 3 top impediments to the widespread use of digital assets in the next three years? (Select 3)
Regulatory uncertainty
around goverance, legal
and risk aspects
Lack of a CBDC as risk-free
money for wholesale digital
payments
Limitations of knowledge
in key functions (by risk,
compliance and legal)
Lack of institutional
grade digital custodians
Formation of market-
wide ecosystems
around a solution
Vendors’ ability to scale
to deliver market-wide
solutions
Connectivity to legacy
technology platforms
(internally)
Interoperability of
different blockchains
51%
34%
43%
31%
42%
30%
38%
29%
Securities Services Evolution 2023 35
14b. Regulatory uncertainty around governance, legal and risk (by region)
60%
50%
40%
30%
20%
10%
0%
“Electronic wallets have already become a huge part
of our economy. It is critical for us to be able to work
with innovative technologies and partners to reach a
broader base of market participants and be part of
these channels to reach the investing public.”
Roel A. Refran, The Philippine Stock Exchange, Inc.
5. Assuming the legacy burden
As we move from an era of experimentation with DLT
into an era of commercialization, the connectivity of our
digital platforms to our core infrastructures is a central
problem for around one in every seven firms. Most often
manifest in core banking and treasury systems, the
central question is how to reflect and manage digital
assets (and balances) alongside traditional ones in
systems that may be up to 40 years old.
Based on percentages of respondents in each region citing this option as one of the top three obstacles to DLT development. Due to
multiple responses allowed, the percentages do not add up to 100%.
14c. Formation of market-wide ecosystems around a solution (by region)
50%
40%
30%
20%
10%
0%
APAC
APAC
EMEA
EMEA
Latin America
Latin America
North America
North America
Based on percentages of respondents in each region citing this option as one of the top three obstacles to DLT development. Due to
multiple responses allowed, the percentages do not add up to 100%.
50%
48%
46%
38%
43%
48%
38%
58%
Securities Services Evolution 2023 36
“We are in the early phases of our DLT project
which is being run as a side-car to our current
system. We’ll grow it in parallel and at its own
pace — focusing all the time on where it can do
better than services we have today.”
Derek Neo, SGX Group
Over the last year, the ownership of this question has
shifted — from being the problem of the holder (of the
digital security) to that of the operator (of the digital
platform). Faced with firms who are unable to proceed
in an entirely digital environment, FMIs and technology
platforms have begun to assume the legacy burden and
incorporate it into their platform designs. This is why
SDX offers a consolidated platform across traditional
security issuance and digital assets
19
; it is why Deutsche
Boerse’s D7 still manages settlements in T2S
20
; and it is
why BondbloX is able to connect with banks via APIs or
even file transfers if needed. In all of these platforms,
users can connect on day one and derive all of the
business benefits of these platforms with almost zero
transition risk. How they then deepen their integration
over time is up to them — but it is no longer a critical
dependency on the path to digitization.
6. Vendors’ scalability: a new form of due diligence
How can a bank that employs 500,000 staff become
comfortable partnering with a firm of 20 people to
execute its digital strategy? This is a brand new question
for many investors and banks surveyed, 35% and 32%
of whom respectively are struggling to adapt their
established due diligence and oversight models today
(see Figure 14d). What questions should firms ask to
make sure they pick the right partner? What KPIs can
expose a partner’s (in)ability to scale? What controls
should be expected from a start-up firm? Existing and
often rigid due diligence procedures (usually designed
with other large-scale institutions in mind) cannot be
applied in these cases — both because they can quickly
overwhelm a smaller firm and because they most likely
may fail to identify key risks.
Managed badly, these relationships can create multiple
layers between the client and the provider — and in turn
negate the core value of the original partnership. By tying
up expert specialists in calls with compliance departments
for days on end, for example, large banks risk ultimately
destroying the original value of their partnerships.
7.“We can’t change anything, if we don’t change anything”
Above all, DLT and digital assets are about change and
process re-engineering — and one of the most common
reasons for DLT projects’ failures is an inability to revise
the operating model to optimize the use of the new
technology. In order to realize the significant benefits
of DLT and digital assets across operations and market
liquidity, it is critical that firms begin their initiatives on
the assumption that significant investment in re-shaping
processes and systems will be needed. DLT and digital
assets are proving themselves to be excellent enablers of
new efficiencies, but these benefits can only be derived
once processes are reformed.
Figure 14d: Ability to scale and deliver market-wide solutions (by segment)
Asset managers
27%
35%
Institutional investors
Custodians
17%
32%
Banks
Broker-dealers
19%
Based on percentages of respondents per segment citing this option as one of the top three obstacles to DLT development. Due to multiple
responses allowed, the percentages do not add up to 100%.
Securities Services Evolution 2023 37
Conclusion
There is much more happening in the world of securities
services than just T+1. In the face of increasingly pressing
priorities across settlements, asset servicing, digitization
and legacy transition, FMIs and market participants are
maturing quickly in their approaches to planning and
realizing change. By being more practical than ever and
more collaborative, they are realizing successes that
seemed unimaginable a decade ago.
The coming five years will bring massive amounts of
change to our industry.
• Settlement cycles will continue to shorten in
more markets.
• DLT will be used not to experiment but to deliver.
• Funding mechanisms will evolve into digital cash.
• Core banking systems across the industry will be
removed and replaced.
In an era of increasing competition for investment and
resourcing, firms will face significant challenges and trade
offs in the year ahead as they look to accommodate and
balance their solutions to these changes. What is different
today is that that those trade offs look set to be managed
as an ecosystem discussion.
Securities Services Evolution 2023 38
Acknowledgments
We would like to thank our financial market infrastructure partners, industry participants and
clients who have contributed their time and insights to this whitepaper.
Securities Services Evolution 2023 39
Contributors
We would like to extend special thanks to our Securities Services teams whose knowledge and
insights contributed to this paper.
Bryan Murphy
Global Head of Banks Sales, Securities Services
Ingrid Collazo
Head of Securities Services, Latin America South
Jack White
Head of Client & Industry Engagement, Data,
Digital & Innovation, Securities Services
Jeffrey King
Global Head of Custody Product Management,
Securities Services
Jolene Han Berg
Global Head of Banks Marketing, Securities Services
Joseph Eggers
SVP, NAM Product Management, Securities Services
Josh Freiberger
Director, Data, Digital & Innovation, Securities Services
Marcello Topa
EMEA Head of Market Policy and Strategy,
Securities Services
Michele Pitts
Custody Product Head for NAM Strategic Initiatives,
Securities Services
Nadeem Hussain
APAC Head of Marketing, Securities Services
Ryan Marsh
Global Head of Blockchain, Digital Assets & Innovation,
Securities Services
William Mascaro
Global Securities Financing Trading Head, Securities Services
Yajnesh Pandey
Head of LATAM Product Development, Securities Services
Securities Services Evolution 2023 40
1 https://icg.citi.com/icghome/what-we-think/citigps/insights/money-tokens-and-games
2 https://thevx.io/campaign/proxy-voting-in-australia-and-new-zealand/
3 https://www2.asx.com.au/blog/corporate-actions-in-australia
4 https://thevx.io/campaign/corporate-action-transformation-in-south-africa/
5 https://www2.asx.com.au/content/dam/asx/about/business-committee-agendas/2023/business-committee-22-march-2023.pdf
6 https://www.dtcc.com/ust1/by-the-numbers
7 AFME — September 2022 — T+1 Settlement in Europe: Potential benefits and challenges
8 https://thevx.io/campaign/operationalising-t1/
9 https://infogram.com/da-nbt-sbl_milestones-1hzj4o3md80l34p?live
10 https://www.adb.org/publications/project-inthanon-and-project-dlt-scripless-bond, https://www.worldbusinessoutlook.com/the-philippine-dealing-
system-launches-digital-native-bond-on-dlt-network/
11 https://www.ledgerinsights.com/chile-tokenization-csd-central-securities-depository/
12 https://www.hkma.gov.hk/eng/news-and-media/press-releases/2023/02/20230216-3/
13 https://www.banque-france.fr/en/communique-de-presse/banque-de-france-and-banque-centrale-du-luxembourg-jointly-conducted-successful-
wholesale-central
14 https://digitaldollarproject.org/
15 https://www.snb.ch/en/mmr/speeches/id/ref_20230330_amrtmo/source/ref_20230330_amrtmo.en.pdf
16 https://asianbankingandfinance.net/news/mas-new-york-fed-unveil-results-study-dlt-use-cross-border-wholesale-payments
17 https://equilend.com/services/equilend-1source/
18 https://www.adb.org/sites/default/files/publication/222061/financial-inclusion-se-asia.pdf
19 https://www.sdx.com/news/benvenuta-lugano/
20 https://www.deutsche-boerse.com/dbg-en/media/press-releases/Deutsche-B-rse-launches-next-generation-digital-post-trade-platform--2800582
Endnotes
The insights in this whitepaper have been prepared in collaboration with the ValueExchange. The ValueExchange is a global
market research firm, specialising in the capital markets. Leveraging extensive market connectivity and practitioner expertise,
our objective is to help market participants and providers to make the case for transformation. More information on the
ValueExchange is available at thevalueexchange.co
The material provided is for informational purposes only. Information is believed to be reliable but Citigroup does not warrant its
accuracy or completeness. Citigroup is not obligated to update the material in light of future events. This does not constitute a
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