(Bloomberg) -- Britain’s move to follow the US into a faster equities trading regime could prove challenging for the foreign-exchange industry, given the pound is less liquid than the dollar, according to the group spearheading the transition.
The UK is preparing to join the US in a one-day settlement cycle known as T+1, in the final quarter of 2027. The risk of failed currency trades is one area of concern, based on lessons from the US experience, Andrew Douglas, chair of the group, said at an industry round-table event on Tuesday.
The US shift earlier this year sent unintended shock waves through the $7.5 trillion-a-day currency market by placing US stocks out of step with FX trades, which typically take two days to complete. Market players say the transition has been far from plain sailing, with funding processes having to be overhauled and traders relocated, according to a survey by Citigroup Inc.
“FX wasn’t really considered in the US,” Douglas said. “Everyone’s got dollars — it’s less of an issue for them. Sterling isn’t a reserve currency, people don’t have sterling just lying around, so we have to take a different approach.”
Douglas said the taskforce has spent the last eight months working with the Global Financial Markets Association, focusing on mitigating the impact to currency markets. In a report published last month, the group encouraged regulators to educate all market participants on the risks, and called on key settlement firm CLS and custodian banks to assess whether deadlines can be extended.
Firms in the industry should look to automate more trade processes as a solution to getting transactions settled faster, Douglas said.
“60% of global capital markets today operate on T+1 or less,” he said, adding this meant it would work in the market overall. “Where this won’t work is at the level of individual institutions who decide not to automate.”
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