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Prices at the Pumps - March 20, 2024 #saltwire #energymarkets #pricesatthepumps #gaspricesNEW YORK/LONDON - 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 . DTCC declined comment. A paper it published on Feb. 28 said market participants must accelerate their preparations.The shortened cycle could cause operational challenges such as potential dislocation in FX trades. Foreign investors have to buy dollars to fund U.S. securities transactions.
According to EFAMA, asset managers trading up to the U.S. close have just two hours to confirm those trades and submit them to CLS. EFAMA members polled said they expected to have to settle $50-70 billion of daily FX trades outside the safety of CLS, leading to calls to extend the CLS cut-off time. This could increase the use of the overnight repurchase agreements but shift credit risk - the danger that a counterparty cannot pay its obligations on time and in full - onto banks in that space, said Adam Watson, head of commercial product for custody services at BNY Mellon.
But this type of lending is usually limited to the processing of clients' securities or payment transactions and is not generally committed, and is therefore not a guaranteed extension of credit, Watson said.There could be other consequences. Global index funds such as exchange-traded funds with a significant mix of assets having mismatched settlement could also face disruption, managers said.
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