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Loan trade settlement: T+0 is already a reality today
In our February post, we touched upon some of the innovations that ClearPar has contributed to the loan market over the last decade. Today, our topic is settlement time, also known as T+. Yes, that one. The one that many people believe hasn't really budged from the mid to upper teens over the years.
But we are not here to pile on T+, or to deconstruct market-wide performance. Some of the complexities related to loans are outside any individual firm's control.
Instead, we want to highlight what can be achieved with the technology we have already brought to the market. You don't need to wait for a silver bullet to materially improve your T+. It is possible to lower your settlement times - significantly - using technology that is available today.
Here are some interesting stats to get you thinking about your own settlement performance and that of your providers:
- In 2020, ClearPar trades worth $253bn notional closed within 7 days of Trade Date. Given that Delayed Compensation for the LSTA market does not encourage early settlement (i.e. settlement before Delayed Compensation begins accruing on T+7), this is a pretty astounding achievement.
- It is possible to close even faster. Trades worth $50bn closed by T+3 in that same period. And even lower than that: $2.3bn worth of trades closed on T+0.
How do these stats apply to you? Maybe they can serve as a goal. Can 30% of your trades close within T+7 by the end of the year? What do you need to do to get there?
We work with our clients to help them improve their efficiency, often so that they can concentrate on settlement times. There are large asset managers, household names, that have shaved double digits off their T+ by adopting our solutions, combining them with process changes or managed services, and overhauling their operational models as a result. A couple have even improved enough (sometimes within months) to earn awards for settlement performance from us. There are banks that have invested in integration projects to bring about operational efficiencies, resulting in increased scale for their trading desks - and improved settlement times.
By focusing on automating what can already be automated today, you will be able to reduce risk and deliver excellent T+ results for your business. And there couldn't be a better time to focus on this work - with the end of LIBOR on the horizon, now is the moment to get your house in order! And, of course, we are always here to advise and support you as you strive to reduce settlement times.
See below for an overview of our loan settlement solutions and visit our webpage for more details.
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
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