DLT, digital money rise as securities sector eye faster settlements

The move to T+1 has given birth to challenges in the securities ecosystem, said Citi.

Faster settlements have been named as a key challenge and the single biggest area of focus for the securities ecosystem, a whitepaper by Citi found.

For the last 3 years, cash, funding and liquidity management have been cited as the greatest obstacle to achieving a shortened settlement cycle, the bank found in a survey of 500 financial institutions and other stakeholders.

The move to T+1– in which trade-related settlements are done within at least 24 hours of completing a transaction– in major markets is another major challenge faced by respondents. Exactly 8 in 10 or 80% of market participants expect a notable impact on their securities lending and borrowing business– one of the single most impacted areas by the move to T+1, Citi found.

“Our research shows that the rapidly accelerating move to T+1 in major markets poses significant challenges to industry participants, leaving an urgent need to drive innovation, automation and efficiencies in global operating models,” said Okan Pekin, global head of Securities Services at Citi.

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DLT, digital money
Almost 7 in 10 or 69% said that they are focused on automating and standardizing client communications. Over 6 in 10, or 64% meanwhile are looking to upgrade or replace technology platforms.

Distributed ledger technology (DLT) is also gaining traction, with 74% of respondents engaging in DLT and digital asset initiatives, of which 38% are live with digital asset offerings and 22% have DLT offerings. This is a massive jump from the just 47% of respondents in 2022 who engaged in DLT.

Digital money is another point of interest for the respondents. There is growing belief that digital money– central bank digital currencies (CBDCs), bank and non-bank issued stable coins– are maturing quickly. 

And 87% of the respondents see them as a viable means to support securities settlement, growing from just 72% in Citi’s 2022 whitepaper.

Citi’s study involved 12 FMIs and industry participants, and about 500 market participants from banks, broker-dealers, asset managers, custodians, and institutional investors around the world.