Cloud offers simplicity of adopting real time data processing for T+1 settlement

Will your bank be ready in time?

The use of real-time data has become a competitive necessity. Organizations are increasingly leveraging real-time processing through cloud technology to enhance their operations and meet the demands of today's fast-paced financial landscape. In the trading environment, security execution has always been essentially based off real-time data, but trade settlement has traditionally been done in T+2. It is this lag in the process that is about to change in accordance with new regulatory requirements.

Financial services institutions now have the opportunity to combine their institutional heft with the latest processing technologies, delivering their services cost-effectively.

When the transition to T+1 happens, will your firm be ready? Odds are, you will (at least somewhat ready). The SEC is requiring that financial service providers settle securities trades in a day. You’ll be settling trades of mutual funds, bonds, derivatives, equities, and more in one-day post-trade. And you’ll succeed because you must – even if that means jamming a two-day manual process for handling exceptions into one.

Your people can adjust their schedules. You can run smaller batches on overloaded on-premise systems more frequently. There are so many bad options for fitting a two-day process into one. Or you could set the stage for event-based, real-time settlement using a more automated process and cloud compute capacity. You shift away from manual processing of minor exceptions and alert your people to complex exceptions sooner. That’s a strategy that lets you pivot from a reactive stance to one that gets you ready for whatever’s next.

End batch processing

The move to T+1 happens on May 28, 2024. That’s the Tuesday after Memorial Day, giving impacted firms a three-day weekend to implement the shift. The change should bring value to markets in the form of reduced liquidity and other risks. And the requirements are clear: Transactions executed by 4:30 PM must settle by the next day. From boutique brokers to insurance giants to global banks and broker/dealers, firms that fumble the deadline will face regulatory scrutiny and fines.

Many firms manage a large percentage of exceptions with entirely manual processes, like spreadsheets and email. And some exceptions are minor data-quality issues (like inaccurate counterparty instructions) that can be addressed by consistent use of standard settlement instructions.

But batch processing is the core inefficiency in the settlement process – and batch processing of transactions is what most on-premises systems were designed to handle. These systems traditionally process all the day’s transactions at the end of that day. Teams deal with most exceptions the next day, with complex exceptions taking two days.

In contrast, a real-time process surfaces exceptions immediately, eliminating much of the lag. Getting to real-time, event-driven processing on-premises would require a significant investment in hardware and data-center capacity. And it would involve continued investment in outdated legacy systems – an investment likely to deliver no long-term returns. The cloud offers firms like yours an ideal platform for event-based processing and more-automated exception management.

Why cloud for T+1 settlement

The cloud frees your transaction settlement processes from the constraints of on-premise systems. Your infrastructure scales to match demand. An on-premise system that could handle the heaviest trading days and times of day would be idle much of the time – and expensive to build. That elasticity delivers significant long-term cost savings. The cloud offers a high degree of resiliency, too, with automatic failover and autoscaling reducing risk. Moving workloads to the cloud also delivers an opportunity to modernize applications and processes. You use best practices, cloud-native technologies, and automation as a foundation that reduces maintenance complexity and increases agility.

Many financial service providers have been slow to adopt the cloud due to security and compliance concerns. This is ironic because cloud – done right – reduces security and regulatory risk. You deploy preventive, detective, and corrective controls that keep your infrastructure in compliance with your policies.

The benefits of cloud for transaction settlement add up. Cloud:

• Enables event-based processing that identifies exceptions in real time
• Provides a platform for consistent automation to resolve routine exceptions
• Reduces reliance on manual processes to manage exceptions and drive straight-through processing
• Enforces security, risk, and governance objectives more automatically

Start your cloud journey now

Do you want a settlement process that’s just fast enough to comply with T+1? Or are you ready to build momentum and agility for the future? At Amdocs, we help financial service providers move to the cloud as they adopt processes – and a mindset – that boost returns and agility. We’ve worked with 40+ banks and other financial leaders to turn promising strategies into measurable value. Talk to our specialists to learn more.