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Speed, risk, and readiness: T+1 and securities lending solutions

Aerron Reynolds
13 September 2023

Racing the clock: strategies to meeting T+1 in securities lending

What is securities lending?

Generally, securities lending is the act of one party (the lender) lending securities to another party (the borrower). The borrower needs to provide collateral to secure the loan, and this can be done through cash or other securities. Additionally, the borrower is expected to pay a fee. The length of time is arranged between the parties through a middleman, and after a period, the security is returned to the lender.

What does this mean for you?

Beginning May 2024 in North America, securities traders will need to complete the process of transferring ownership faster than before – within one day after the trade (T+1) instead of two (T+2). This has raised concerns about the increased risk involved as companies fear they will not be able to deliver the sold securities within the tight deadline.

The consequences of a trade not going through on time involve more than just the two main parties involved. The two biggest areas of concern are:

  • Market liquidity – To comply with T+1, lenders may keep their stocks rather than lend, decreasing liquidity.
  • Increased costs – Lenders may require higher collaterals to offset risk, discouraging borrowers while driving up costs. The shorter deadlines also put risk on borrowers. If they fail to return stocks promptly, a lender may make a claim against them resulting in legal fees and possibly fines.

The risk of recalls

Another concern is being able to identify a recall in time to satisfy the delivery of a sale by the T+1 deadline. However, it’s not unusual for a recall to fall outside a contractual agreement, and the lender may not know when they’ll get their assets back.

Beyond the difficulties of such a quick turnaround, this also creates the need for a system that works around the clock, particularly for institutions that work outside of the US. In reality, recall notices may not even be seen until the following workday, requiring heightened services to meet the deadline.

This also increases the risk of overdrafts due to loans not being returned on time.

What questions should you be asking?

There are important questions to consider as you build a strategy for T+1:

  1. What are your positions for each security and where are they held?
  2. Which securities are currently loaned out?
  3. Which securities have been recalled?
  4. Which securities are needed to fulfill delivery requirements, and where can you source these securities if unavailable?
  5. If a security you sold is being used as collateral and needs changing, what is the plan?

With these questions in mind, certain factors should be considered to gauge readiness to support securities lending to meet T+1’s deadline.

Keep accurate records

Consistently maintain records from custodians or agents about positions and settlements. You should also ensure you reconcile accounts accurately and on time. This helps you know your positions as well as any failed settlements quickly, ensuring that all loans are settled promptly and in accordance with your inventory.

Leverage automation and other leading-tech solutions

T+1 means less time to handle recalls and reallocations and makes micromanagement impossible. Automation is crucial. Implementing this into your recall process saves you valuable time and lowers risk. If recall isn’t automated, it’s time to make a technological assessment.

Assess risk

A new perspective on borrowing and lending risk assessment is vital. Lenders may need more collateral to manage the increased risk. On the other hand, borrowers might need a broader operational review to ensure market trades settle on the value date. Keeping these factors in mind will help manage risk.

We know T+1

Our experience can guide you in assessing your readiness to support securities lending for T+1. If you haven’t looked at your overall post-trade operations yet, our experienced experts can assist you with your T+1 program. We can help with tasks like data analysis and reaching out to other parties involved.


Aerron Reynolds

Manager at Quorsus, part of Capgemini