The hot topic at this year’s TradeTech FX USA conference is limiting the settlement time for US equities to a single day. Under the T+1 settlement rule, effective in May 2024, securities transactions will now settle a day after trading.
FX traders scrambling to prepare for faster currency trade turnarounds
Many fear that this will negatively impact forex (FX) trades. Bloomberg reported that these currency transactions need about two days to go through and would now have to speed up, which may cause currency bottlenecks at the day’s end and botch some trades. CLS Group Holdings AG, a world leader in FX settlements, indicated that approximately a third of asset managers are unprepared for this move.
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FX liquidity reaches a peak when the Asian, European and US markets are open at the same time. Trends indicate a dip in currency trading when the European and Asian markets close. Experts believe some agencies may set up shop in the US to address this issue, while others may automate their operations during off times. As these initiatives are expensive, clients may have to dig deeper into their pockets.
Rushing to finalise trades just before the bell chimes could increase price volatility and trading costs. According to Bloomberg, Swiss-based CLS said an estimated $65bn of trades may not make the cut-off. Crossing this T+1 hurdle requires traders to change their protocols. CLS, for instance, put out a survey to clients to determine if they want to extend trading by 30, 60 or 90 minutes
