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HSBC Emerging Markets Spotlight Podcast Series: The impact of T+1: are you prepared?
19 Plays1 year ago
With the transition to the T+1 settlement cycle set to take place in May 2024, we look at what the impacts are expected to be, including challenges around time zones, FX and liquidity. We also talk about what clients should be focusing on and how HSBC is enhancing its offerings to provide support in this transition.
Emerging Markets Spotlight is a podcast miniseries created and hosted by HSBC that seeks to explore and understand the complex and critically important issues facing the world’s emerging markets. For further insight and information around emerging markets, visit Accessing Emerging Markets | HSBC.
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Transcript
Introduction to HSBC Global Viewpoint
00:00:02
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
Speaker
Make sure you're subscribed to stay up to date with new episodes.
00:00:16
Speaker
Thanks for listening, and now onto today's show.
Challenges in Emerging Markets
00:00:32
Speaker
Welcome to the Emerging Markets Spotlight, a podcast series from HSBC.
00:00:38
Speaker
The emerging markets landscape is more complex than ever at a time of divergent monetary policy, high commodity prices, supply chain disruptions and geopolitical tensions.
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Speaker
Join us as we speak with world's leading institutional investors, experts, policymakers, and thought leaders to explore the challenges and opportunities.
00:01:03
Speaker
Make sure you subscribe to HSBC Global Viewpoint and stay up to date with new episodes.
00:01:10
Speaker
Thanks for listening.
00:01:11
Speaker
And now on to today's show.
Shift to T+1 Settlement Cycles
00:01:17
Speaker
Hello, thanks for joining us today.
00:01:19
Speaker
I'm Neil Atkinsonant and I'm responsible for our bank and broker-dealer client relationships for security services here at HSBC based in London.
00:01:26
Speaker
I've just come back from a global transaction banking conference, Cybos in Toronto, where T plus one or reduced settlement cycles were very topical.
00:01:33
Speaker
Today, we aim to provide some insight into what it's all about
00:01:36
Speaker
why it's happening, what the impact might be, and what we all need to do to prepare.
00:01:40
Speaker
With May 2024 now only eight months away, we'll be looking at what the impacts are expected to be, what clients should be focusing on, and how HSBC is enhancing its offerings to support clients in this transition.
00:01:52
Speaker
So why are these settlement cycles being reduced?
00:01:54
Speaker
The main driver for the change is to reduce the pre-settlement risk of counterparties not delivering on settlement date, where that risk has been margined,
00:02:00
Speaker
As with transactions cleared at central counterparties, CCPs, decreasing the risk in turn decreases the margins and associated capital required.
00:02:09
Speaker
Capital efficiency and liquidity improves and costs are reduced.
00:02:12
Speaker
The DTCC estimates that removing one day's exposure to that risk could translate into a 41% reduction in the volatility component of CCP margin requirements.
00:02:22
Speaker
So clearly there are some benefits.
00:02:23
Speaker
I'm delighted to be joined today by four colleagues and HSBC experts from markets and security services who each come at this from a different angle, but critically with equally important viewpoints.
00:02:33
Speaker
So I'd like to introduce you to Sophie Mullanders, Custody Product for Europe and the Americas, Adnan Hussain, Head of Agency Lending and Liquidity Services, and Eric Chang, Head of FX Solutions APEC.
00:02:44
Speaker
And also, last but not least, Ashwini Kanadi, Senior Vice President of Product Security Services, Southeast Asia.
India's Approach to T+1 Settlement
00:02:51
Speaker
So without further ado, let's start with you, Ashwini.
00:02:53
Speaker
India went live with T plus one reduced settlement cycle relatively recently.
00:02:58
Speaker
I wonder if you can take us through how this change was implemented and what your India experience was.
00:03:02
Speaker
Thanks.
00:03:03
Speaker
Thank you, Neil.
00:03:04
Speaker
So quite rightly, the Indian securities market regulator
00:03:08
Speaker
ushered transformative reform with the introduction of T plus one settlement cycle.
00:03:13
Speaker
Just to put this in context, the Indian equities market had already operated on a T plus two settlement cycle since 2003, which is nearly 20 years ago.
00:03:22
Speaker
What do we mean by market friendly staggered manner?
00:03:26
Speaker
To give the market sufficient time to get used to a concept of accelerated settlements, the stocks were introduced to the T plus one cycle
00:03:35
Speaker
based on the ranking of their market capitalization.
00:03:38
Speaker
So what the exchanges would do is they would announce a list of securities that would move to this cycle before the scheduled date of movement.
00:03:46
Speaker
Now, the very important place that the regulator had emphasized on was data-driven analysis to arrive at the confirmation as well as the settlement timelines
00:03:58
Speaker
in a manner in which there is a fine balance maintained between the requisitions of each of the multiple stakeholders in the Indian market.
00:04:07
Speaker
HSBC played an important role in ensuring continuous engagement with the securities market regulator and with the central bank,
00:04:16
Speaker
As you would realize in an accelerated settlement cycle, the challenges posed by FX and liquidity take center stage.
00:04:24
Speaker
As the data-driven analysis showed, we could assist our global clients with their FX and their settlements-related processes based on their geographic locations owing to the fact that we looked at
00:04:39
Speaker
the entire settlements process in further detail.
00:04:42
Speaker
Over to you, Mim.
00:04:43
Speaker
Thanks very much, Shesh.
00:04:44
Speaker
You mentioned FX and liquidity, so great that we have some experts with us today to talk about that in a bit.
00:04:50
Speaker
But first of all, we turn to Sophie.
US Concerns with T+1 Transition
00:04:52
Speaker
Sophie, we've been here before in the US in 2017.
00:04:54
Speaker
The US moved from a T plus three to T plus two cycle.
00:04:58
Speaker
What's different this time, do you think?
00:04:59
Speaker
And why is it creating so much anxiety?
00:05:02
Speaker
I know we hear from clients almost on a daily basis, particularly in Asia at the moment.
00:05:06
Speaker
Yes, we do, Neil.
00:05:07
Speaker
The point is that a lot of HSBC clients are European and Asian-based clients.
00:05:13
Speaker
So that means that this change is going to be a very big impact to these clients.
00:05:18
Speaker
Pretty much all clients, all investors are exposed one way or another to the U.S. as the largest capital market.
00:05:27
Speaker
And this change will impact most players, whether they are local or international brokers or investment managers.
00:05:35
Speaker
The first rule will require the broker dealers and investment managers to complete trade allocations, confirmations, and affirmations.
00:05:46
Speaker
Now, concerning the US, that move to T plus one implies a fundamental change in the trade affirmation process.
00:05:56
Speaker
So there's a change in the SEC rules, which will affect the clients.
00:06:01
Speaker
So this is the reason why people talk a lot about it.
00:06:05
Speaker
as soon as technically possible but in any case by no later than 9 pm on trade date eastern time so that is 2 a.m in the morning uk time or this is 9 a.m the next day in hong kong or singapore so it gives you an idea of the time challenge we are facing
00:06:24
Speaker
The second SEC rule is that the registered investment advisors need to also make and keep the records, including the date and the timestamp of all these trade confirmations, allocations and affirmations sent.
00:06:41
Speaker
So again, this is a big change in the process.
00:06:44
Speaker
Thank you, Sophie.
Impact on Securities Lending
00:06:45
Speaker
So maybe turning to Adnan, Adnan, you're responsible for both Treasury and securities lending here for
00:06:50
Speaker
HSBC's security services business.
00:06:53
Speaker
A primary role for securities lending is to provide liquidity.
00:06:56
Speaker
So T plus one clearly going to have a knock on effect on stock lending and borrowing, like Sophie alluded to, with less time to identify and recall the loans, settlement fails, and resulting penalties could rise, of course.
00:07:07
Speaker
What opportunities and challenges do you see, Adnan?
00:07:10
Speaker
I think it's a good question.
00:07:12
Speaker
From a securities lending perspective, perhaps to be contrarian, to start off on the opportunities front, ultimately, we have seen settlement cycle decrease over the years in several different markets.
00:07:23
Speaker
Each time that did take place, the role of securities lending essentially as a liquidity provider did allow us to effectively enable the market
00:07:31
Speaker
They supply the sufficient assets in order to meet the appropriate settlement.
00:07:35
Speaker
So, you know, certainly there is an opportunity associated purely from a lending perspective on a performance basis.
00:07:42
Speaker
Efficiencies from an operational perspective, as well as just operational risk and cash and liquidity risk are really at the forefront to try to be able to manage within this type of a transition.
00:07:52
Speaker
So from an operational perspective,
00:07:54
Speaker
a lot of the framework around streamlining of recalls as well as the settlement process in general associated to both the collateral and loan side are effectively at the forefront in this type of a transition.
00:08:08
Speaker
And in order to really address those from an asset manager's perspective,
00:08:12
Speaker
The way that you're communicating the technology that you would be using with your custodian as well as your brokers are huge enablers to be able to ensure a smooth transition effectively into this T plus one advantage.
00:08:24
Speaker
I think that operational capacity and the way that we would process recalls, accelerate the timings to receive cash notifications from our underlying clients, and so sales notifications from our underlying clients, as well as perhaps from a treasury perspective, consider the advent of the likes of free funding to help mitigate some of the challenges that are then drawn out of time zone challenges that you've heard of from Sophie as well.
00:08:48
Speaker
Addressing some of those challenges through the likes of free funding
00:08:52
Speaker
our options to be able to really get ahead of it and mitigate any negative impacts associated with the transition.
00:08:59
Speaker
I think one last point I did want to really raise was the U.S. certainly would be the largest by way of capital markets, but in a securities lending construct that accounts for nearly 60% of the market today, U.S. treasuries and certainly the government bonds in general would be one of the largest asset classes traded and have done so on a same-day basis for an extended period of time.
00:09:21
Speaker
Having seen the smooth fashion in which those have traded, it does lend a lot of confidence into the transition on T plus one for the equity businesses.
00:09:29
Speaker
Yeah, thanks, Adnan.
00:09:30
Speaker
Really good point on T-bills, actually.
00:09:32
Speaker
Eric, Adnan mentioned pre-funding.
FX Concerns and Operational Readiness
00:09:34
Speaker
If we look at the FX component, something that's obviously critical to successful settlements, I know that you're speaking to clients on a daily basis now who've got some concerns about when the transition's occurring and the time left to prepare for that.
00:09:47
Speaker
But what's your view, please, Eric?
00:09:49
Speaker
So really, we're seeing two sets of clients, right?
00:09:51
Speaker
There's a group of clients generally based in restricted currencies that do
00:09:56
Speaker
currently prefer to pre-fund trades, right?
00:09:58
Speaker
So I think the T plus one transition is going to be a less of a concern for them.
00:10:02
Speaker
Generally, when they receive their base currency and they immediately start hedging into USD, that USD is going to be ready for security settlement from day one.
00:10:09
Speaker
So they're a little bit less concerned.
00:10:11
Speaker
Maybe instead of T plus two starting, they may try to revert back to T plus one and just try to maintain some cash balances available.
00:10:19
Speaker
I think in the past when
00:10:20
Speaker
US rates were definitively lower than a lot of the yen carry currencies.
00:10:24
Speaker
There are some cost concerns around that, but obviously with the great environment where it's at, the concern is a little bit less for them for early pre-funding.
00:10:32
Speaker
I think the real impact for Asian and immediate clients are those that do prefer to deal FX,
00:10:38
Speaker
on a post-securities execution basis.
00:10:40
Speaker
And that leads to a lot of knock-on effects, right?
00:10:43
Speaker
Now with US point of T plus one, for an Asian or media investor that's waiting for the securities amount to match a firm and then generate the X orders for that execution, they're looking at T plus zero execution window.
00:10:56
Speaker
Right.
00:10:56
Speaker
There's there's a lot of concerns around this.
00:10:58
Speaker
Essentially, if you get your FX incorrect, it's just leading to an immediate settlement failure, right, which is what everybody wants to kind of avoid.
00:11:05
Speaker
So I think really improving and streamlining the post trade cycle to ensure that they're getting those FX orders affirmed and then subsequently sent on for execution will be critical.
00:11:16
Speaker
The big concern that I think two or three markets really have in JPY, Aussie, and Kiwi is the early cutoff of those markets, right?
00:11:24
Speaker
I think when you're talking about the yen market, the cutoff for that is substantially earlier.
00:11:30
Speaker
I think the affirmation cutoff is 9 p.m.
00:11:33
Speaker
Eastern, which is 9 a.m.
00:11:34
Speaker
Hong Kong.
00:11:35
Speaker
That's like 30 minutes left for execution.
00:11:37
Speaker
And it's going to be similar to AUD as well.
00:11:39
Speaker
So those are some of the main concerns that we have been seeing arising out of the region.
00:11:43
Speaker
Yeah, you're right.
00:11:43
Speaker
The market here in Europe has just gone through the whole CSDR and settlement discipline regime and now embracing this new challenge.
00:11:50
Speaker
What are the options available to HSBC's FX clients then?
00:11:55
Speaker
What can they do, do you think?
00:11:56
Speaker
Yeah, so I mean, there's the...
00:11:57
Speaker
There's three readily options that we're looking at.
00:12:00
Speaker
Previously mentioned was pre-funding.
00:12:02
Speaker
I think if you're pre-funding your FX, it's a little bit easier.
00:12:05
Speaker
You have less to worry about.
00:12:07
Speaker
But realistically, it's about outsourcing FX to a third party.
00:12:10
Speaker
So, I mean, generally speaking, when people buy into U.S. securities like Sophie had alluded to,
00:12:14
Speaker
they don't generally prefer to pre-fund or do FX standing instructions, but that's going to have to be considered as an option.
00:12:22
Speaker
If you leave the FX to be outsourced to a custodian bank, you have less concerns about the funding issue.
00:12:30
Speaker
And lastly, it's about maintaining U.S. presence for either execution or middle office or back office, right?
00:12:35
Speaker
So a lot of discussion
00:12:36
Speaker
that we had, you know, half in jest, half out of concern is, do we need to set up a US desk?
00:12:41
Speaker
Do I need to have a desk in the West Coast after US equity closing?
00:12:45
Speaker
And these are some legitimate concerns that a lot of asset managers are kind of grappling with and the potential cost increase behind expanding their presence, expanding desks that they have and how they're really going to staff that going forward.
00:12:57
Speaker
Yeah, OK, that's a good point around US presence.
00:13:00
Speaker
And what about CLS?
00:13:01
Speaker
Any impact there for asset owners?
00:13:04
Speaker
Yeah, so the CLS cutoff, so CLS isn't available for T plus zero settlement, right?
00:13:10
Speaker
So you have to be in a T plus one settlement.
00:13:12
Speaker
So the cutoff for that is, I believe, 6 p.m.
00:13:16
Speaker
Eastern, depending on the time zone and whether it's summertime or...
00:13:19
Speaker
or non-summertime, but that's for CLS itself.
00:13:22
Speaker
A lot of custodian banks have a 4 to 5 p.m.
00:13:25
Speaker
settlement cutoff.
00:13:25
Speaker
But yeah, I mean, so the CLS cutoff for custodians, they need to receive it an hour to two
Adapting to T+1 Timeline for Non-US Clients
00:13:30
Speaker
hours prior to that before they can even allow for that CLS settlement.
00:13:33
Speaker
So CLS is potentially out the window now.
00:13:37
Speaker
So there's a lot of bilateral risk flying around in FX for the entire U.S. securities market.
00:13:41
Speaker
And that is going to be a concern.
00:13:43
Speaker
And it's going to increase potential settlement risk.
00:13:45
Speaker
And a lot of houses are going to have to relook at bilateral kind of
00:13:49
Speaker
settlement limits going forward.
00:13:50
Speaker
Thanks, Eric.
00:13:51
Speaker
Sophie, turning back to you now, you know, if we look at the various stages in the settlement process, and I think impact on affirmation, we already touched upon them for clients in the non US time zone.
00:14:03
Speaker
What does it mean for them?
00:14:05
Speaker
Yes, as we've said, so this affirmation process is going to take place by trade date 9, 9 p.m.
00:14:12
Speaker
Eastern time.
00:14:13
Speaker
So what does that mean?
00:14:14
Speaker
It means basically for Asian and European-based clients, an extended working day.
00:14:20
Speaker
if they choose to do so.
00:14:21
Speaker
So that means also that the client's brokers may actually execute and affirm the transactions for the European and Asian clients when the clients are no longer available.
00:14:32
Speaker
There's nobody left at the office unless the client decides to, yes, set up a U.S. desk or decide to start working U.S. hours.
00:14:42
Speaker
That also means that the client oversight may no longer happen on the trade date.
00:14:47
Speaker
So that's an important point as well.
00:14:50
Speaker
On our side, we want to help our clients.
00:14:52
Speaker
So that is an important point.
00:14:54
Speaker
We want, there is an opportunity for everyone along the trade lifecycle to automate, including custodians.
00:15:01
Speaker
And if some clients have the ability to do so, we will be ready to offer to them the model whereby all what they need to do is to actually place an order to their broker,
00:15:15
Speaker
get a trade suite identifier, their own identifier, that can be used in order to affirm the transactions.
00:15:26
Speaker
If they do that, when they place the order with their broker, at the end of the day, that will create a much smoother model for the clients because we will be able to generate the settlement instruction on the back of the trade affirmation on behalf of the client.
00:15:44
Speaker
So essentially speaking, if the client wants to use that methodology, we do not need to receive a settlement instruction from the client.
00:15:53
Speaker
So actually we can create a much more streamlined process for the clients if they have the ability to support that model.
00:16:01
Speaker
If they don't, still, by using their own trade suite identifier, clients will have the opportunity to send us the settlement instruction by T plus one, no problem at all, because the affirmation will have taken place the day before on time.
00:16:16
Speaker
Now, if the clients say to us, we do not want to go that direction and we would like the custodian to self-affirm for us, this is really where the client needs to be very mindful about the timing of that option.
00:16:33
Speaker
As said, because the affirmation needs to take place by the end of the day Eastern time, 9 p.m., that means that we will need to receive the settlement instruction in that case from the client on the trade date.
00:16:46
Speaker
So that is going to be a big change for the client.
00:16:50
Speaker
Thanks, Sophie.
00:16:51
Speaker
Yeah, okay.
00:16:52
Speaker
Sophie, you touched a bit on kind of innovation.
00:16:54
Speaker
Adam, maybe turning over to you, you know, there's maybe some short-term opportunities and challenges to overcome, but how do you think we, the banks and clients, can utilize technology to improve innovation?
00:17:05
Speaker
process.
00:17:06
Speaker
There's still quite a lot of manual process involved in much of what we do in this world.
00:17:10
Speaker
And I think what we have seen is that technology has made one of the biggest differences from a lending perspective over the last few years.
00:17:17
Speaker
A lot of that has come down to the way that we receive instructions, the way that we're processing requests for collateral, the way that counterparties and agents, for example, will communicate with each other as well.
00:17:29
Speaker
So just anecdotally, a lot of
00:17:33
Speaker
So our business today is approximately 98% SDP.
00:17:36
Speaker
From the inception of the instruction coming through, from the sale instruction coming to us from our client, to requesting that recall from the counterparty, replacing the collateral back, all of that process, really focusing on an improved technology infrastructure to be able to then deliver that in an automated fashion.
00:17:55
Speaker
is essential to be able to meet the T plus one, certainly, but other kind of market regulatory requirements as well.
00:18:02
Speaker
I think this transition to T plus one also will hopefully enable us to kind of just move towards a bit more of a standardized approach.
00:18:10
Speaker
Having a consistent and standardized method by which data is certainly being both utilized as well as transmitted,
00:18:18
Speaker
does offer more opportunities for that automation to really have a positive impact.
00:18:23
Speaker
And I think equally where you consider the cash market, the idea from a treasury perspective is a very big focus for the regulators to actually encourage the short and set in the second and the first place, because the ability to be able to better manage the internal cash balances, the balance sheet effectively, and the costs associated to that staggered cash
00:18:43
Speaker
And the capital and the margin relief that that brings, the shortened settlement cycle, I think has a lot of attractiveness across the entire value chain.
00:18:51
Speaker
Yeah, thanks, Ednan.
00:18:52
Speaker
Eric, I suppose, a question coming in regarding FX and liquidity.
00:18:56
Speaker
So the question is that the Indian market was much smaller in terms of
00:19:00
Speaker
FX, what is being proposed now in the US is much bigger.
00:19:04
Speaker
What do you think the liquidity impact will be?
00:19:07
Speaker
It's a good question.
00:19:08
Speaker
The reality is a lot of people do tend to do execution around equity market closing, and that's generally 4 p.m.
00:19:15
Speaker
Eastern time.
00:19:16
Speaker
Where FX liquidity has a tendency to drop off, obviously London is closed at that point, and we're slowly moving into what they like to call the witching hours, which is
00:19:25
Speaker
if the reality is in between new york and until kind of asia steps in in full with with japan hong kong and singapore liquidity drops off substantially so i think the question a lot of us do have is is that liquidity not going to shift to beyond 4 p.m maybe until 4 p.m 5 p.m will the west coast slowly kind of pick up some of that liquidity and provide some liquidity until until asia steps into the gap and again i'm
00:19:51
Speaker
on friday where where liquidity is historically a little bit lower post post equity closing until it just steps in who is really going to fill in those gaps the reality is the more that fx starts to kind of become executed in those hours that liquidity profile will will likely shift so i think we will see a shifting of that liquidity to an extent
00:20:11
Speaker
as people do start to consider working later out of London.
00:20:15
Speaker
Sorry for you guys in London, but you guys would have to consider staying behind to make sure your FX is executed on a T plus one basis as opposed to a T plus zero basis the following day right before the US market is opening.
00:20:27
Speaker
So I think those are real concerns.
00:20:28
Speaker
We are just kind of really guessing as to what that potential impact would be.
00:20:32
Speaker
But speaking to a lot of investors, it is kind of the focus is about either waiting until Asia is on full flight and moving to a T plus zero settlement model or alternatively try to execute around the U.S. equity close and hoping that liquidity profile will shift, at least for the G7, the G10 currencies.
00:20:50
Speaker
There's going to be a little bit of an increase in liquidity around that time zone.
00:20:53
Speaker
Thanks, sir.
00:20:53
Speaker
But I suppose Ashwini, thinking about India, we know that there are proposals to go even further beyond T plus one.
00:20:59
Speaker
So what's happening next for you?
00:21:01
Speaker
Can you talk to us about
Future of Instantaneous Settlement in India
00:21:02
Speaker
that?
00:21:02
Speaker
Thanks.
00:21:03
Speaker
So after the success of T plus one, our security markets regulator, SEVI, is now planning to roll out T plus one settlement process in India.
00:21:14
Speaker
This is specifically for retail investors by March 2024.
00:21:19
Speaker
And after the success of that, hopefully then they want to, and they've announced this, move on to instantaneous settlement by the end of 2024 for this retail segment.
00:21:30
Speaker
The exchanges and the clearing houses in India have been tasked to work on the model, applying what we currently do in the primary markets for initial public offering.
00:21:40
Speaker
There is a specific process that's followed in India.
00:21:43
Speaker
They will try and apply this to the secondary market trades for retail investors.
00:21:48
Speaker
Our regulator is cognizant of the fact that you cannot directly jump from T plus one into instantaneous settlement.
00:21:55
Speaker
Therefore, it is their belief that you can move to a T plus one hour settlement with existing technology.
00:22:03
Speaker
And then within one year of following the technology changes by the clearing corporations, you could move to an instantaneous settlement for retail.
00:22:12
Speaker
So that's what is next in India.
00:22:14
Speaker
Thanks Ashwini.
00:22:15
Speaker
And instantaneous settlement also sometimes referred to as atomic settlement as well, of course.
Potential for T+0 Settlements
00:22:21
Speaker
Turning to Adnan and Eric, do we think that T plus zero is going to become standard across other markets?
00:22:27
Speaker
Maybe Adnan, first of all, what do you think?
00:22:29
Speaker
Certainly, you know, I think we have seen the proliferation of DLT really coming into the marketplace now.
00:22:35
Speaker
So there potentially would be considerations around T plus zero for securities.
00:22:39
Speaker
I mean,
00:22:39
Speaker
I'm not sure that zero actually does apply from a funding perspective to the same likelihood as security.
00:22:45
Speaker
So it will certainly be challenged to transition to a T plus zero environment in the way that funding currently is organized.
00:22:51
Speaker
I think probably an eventual move to T plus zero cannot be discounted, but the reality of certainly time zone difference does make it a little hard to envision to happen today.
00:23:01
Speaker
Yeah.
00:23:01
Speaker
Okay.
00:23:02
Speaker
Thanks, Adan.
00:23:03
Speaker
Eric, your view?
00:23:04
Speaker
I mean, just absolutely just kind of echoing what Adan says, right?
00:23:08
Speaker
The reality is we do work in different time zones and, you know, going to T plus zero is going to be challenged.
00:23:13
Speaker
I think for other markets, moving to T plus one, potentially down the line, the reality FX is still on T plus two.
00:23:19
Speaker
And there's a lot of discussion about will FX eventually kind of track the move toward T plus one?
00:23:24
Speaker
Obviously the loony dollar candle is already, already there at T plus one per spot.
00:23:29
Speaker
But will we see kind of accelerate settlement for some of the other currencies track this as well?
00:23:34
Speaker
I think another point that people don't really think about is when you move from a spot to value today, value FX settlement, there's additional swap risk added to that.
00:23:43
Speaker
And when you start moving around kind of maybe holidays or
00:23:46
Speaker
or quarter end or kind of these stress market points the spot rate that you're executing at is not necessarily the fx rate that you're going to be settling at especially around quarter end year end any kind of these stress market points on the swap points can get exaggerated it is it is a funding cost there so
00:24:03
Speaker
Maybe possibly some of the FX spot could be compressed a little bit to reduce some of that.
00:24:09
Speaker
But I think it's really, it's going to be about, is the technology there to support us?
00:24:13
Speaker
Are we going to increase the settlement or are we going to be using DLT?
00:24:17
Speaker
And will that backend support and will, of course, the central bank supports for a lot of these currencies, really help to track that and push that forward?
00:24:25
Speaker
Thanks, Eric.
00:24:25
Speaker
Thank you.
Market Readiness and Collaboration
00:24:26
Speaker
I suppose coming towards the end of our session here, is the market ready?
00:24:32
Speaker
We titled this session here today, Are You Prepared?
00:24:35
Speaker
Do you think people are prepared?
00:24:37
Speaker
Look, we discuss with clients on a daily basis.
00:24:40
Speaker
And I'm not going to lie to you, we sense the nervousness of our clients around this, also of the market players.
00:24:48
Speaker
We will be ready as custodians, so we will have the toolkit in order to support our clients.
00:24:55
Speaker
But as I said before, we need to ensure that the process works along the entire chain.
00:25:01
Speaker
And so that means that we need the brokers to be on board.
00:25:05
Speaker
We need the investment managers to be on board.
00:25:08
Speaker
There is a lot of changes that need to take place and automation, and there is very little time left.
00:25:15
Speaker
And so that's why for us, it's so important to have this constant dialogue with clients.
00:25:20
Speaker
We have people here in London, in Asia, in Germany, talking to clients on a daily basis about this C plus one model.
00:25:27
Speaker
And I think Eric, similarly for you.
00:25:30
Speaker
I mean, honestly, we're in the process of getting ready.
00:25:33
Speaker
It's funny, I think since February, when it was announced, we've had so many internal
00:25:37
Speaker
meetings and calls and we've started the market outreach fairly early in the process just just speaking to clients try to figure out what their thought process is around that and just understanding how they're doing their u.s equity related transactions are they pre-funding are they doing it on a post-execution basis
00:25:53
Speaker
And just kind of wrapping our heads around that.
00:25:55
Speaker
I think the reality for the F market is there's not much we can do until the security side of this formula is really kind of ironed out.
00:26:04
Speaker
And that timeline is really set for us to understand what we could do around the FX, but definitely around a lot of key topics.
00:26:10
Speaker
So we're getting there.
00:26:11
Speaker
We still have some time left.
00:26:13
Speaker
So I wouldn't be too,
00:26:16
Speaker
too nervous, but it is coming.
00:26:18
Speaker
And of course, we are having daily conversations.
00:26:21
Speaker
I have quite a number of calls.
00:26:22
Speaker
So if you guys do have further questions or if you guys do have some points that even we haven't thought of, right, I think we're all learning together and it's about trying to figure out exactly what our needs are, what your needs are, and what HSDC can do the best
00:26:36
Speaker
help you prepare.
00:26:38
Speaker
And if there's something that we're missing, we absolutely want to hear that feedback.
00:26:41
Speaker
So we can take that under consideration and build out the best possible product for our clients, you guys, to really be able to consume and embark on this as pain-free as possible.
00:26:51
Speaker
Thanks, Eric.
00:26:52
Speaker
Yeah, excellent.
00:26:53
Speaker
Thank you, Ashwini.
00:26:54
Speaker
Look, Ashwini, Eric, Sophie, Adnan, thank you so much for
Conclusion and Call to Action
00:26:58
Speaker
joining today.
00:26:59
Speaker
From all of us here at HSBC's Markets and Security Services, we wish you all the best of luck.
00:27:04
Speaker
As Eric said, we're here for you.
00:27:06
Speaker
Please get in touch with any questions that you might have.
00:27:08
Speaker
Thanks.
00:27:08
Speaker
Thank you.
00:27:11
Speaker
Thank you for joining us for this episode of Emerging Market Spotlight.
00:27:15
Speaker
We hope you enjoy the discussions.
00:27:18
Speaker
HSBC is uniquely positioned to connect investors and corporates internationally.
00:27:25
Speaker
To learn more about anything you heard today, visit gbm.hsbc.com or contact your HSBC representative.
00:27:34
Speaker
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00:27:52
Speaker
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00:27:55
Speaker
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00:27:57
Speaker
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