Settlement cycle adjustments may cause significant adjustments elsewhere
The looming introduction of a shorter settlement cycle for U.S. securities is causing headaches for international fund managers, who face staffing problems, the prospect of holding more cash and raised foreign exchange risk as they prepare to comply.
The Depository Trust & Clearing Corporation , which provides securities clearing and settlement in U.S. financial markets, has been working to prepare with industry bodies including the Investment Company Institute . Nathan Vurgest, director of trading at Record Financial Group said he is looking at whether FX costs would increase if more trades are done in the late U.S. period should liquidity move away from the London morning.
Shortening the cycle could have other knock-on effects such as increasing demand for short-term financing. Typically, some investors must wait to receive cash from one market before they can buy securities in another, but those who sell international securities to buy into the U.S. may find themselves with a cash shortfall for a day.
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