SECURITIES SERVICES EVOLUTION
Disruption and transformation in financial market infrastructures

Securities Services

Securities Services Evolution

2

Foreword

Okan Pekin
Global Head of Securities Services, Citi

With a presence in more than 100 markets around the globe, Citi Securities Services has a unique connection with thousandsof participants across the industry. This paper has leveraged those relationships to deliver insights into the current state ofmarket infrastructure and securities services. Asset managers, banks, broker dealers, custodians, institutional investors andfinancial market infrastructures have all kindly contributed their time and expertise to make this research as comprehensive
as possible and we would like to extend our thanks to them all.
The pandemic has changed many things in financial markets, as well as other walks of life. In securities services, we findthat it has accelerated and condensed many existing efficiency and digitization initiatives. However, as we have foundthrough extensive dialogue with our partners and clients, it has also given rise to a whole new set of previously unforeseenchallenges. Through periods of higher volatility, the pandemic has also caused market participants to re-examine how thesettlement process could be accelerated and simplified to reduce risk.
The sheer diversity of views expressed by those contributing to this paper — both by geography and entity type — highlights
the complexity of the global securities landscape. Simplifying processes to deliver a more globally consistent and higher
quality client experience is at the heart of Citi’s Securities Services offering, as is anticipating changes and delivering
responsive solutions to maintain that client experience going forward. These changes are numerous and multifaceted, but intime may deliver enormous efficiency gains and cost savings.
We hope you find this paper insightful and informative.

Securities Services Evolution

3

Executive summary
The global securities landscape is on the verge oftransformation, with new technologies and digitalization
efforts poised to deliver major efficiencies and potential
savings. This represents a radical change for an industry
historically fragmented in terms of technology, operating
models and process inconsistencies.
The periodic volatility and remote working caused by the
pandemic have been a catalyst for this change. The pandemic
has also highlighted the need for market participants,
regulators and financial market infrastructures (FMIs)
to co-operate on key initiatives, such as digitization anddigitalization.1 Appetite for both is clearly increasing as theirpotential to transform the industry becomes more widely
acknowledged by market participants and FMIs alike.
In the early days of the pandemic, high market volatility
and volume underlined the critical role that FMIs andsecurities services providers play. The focus now is on how
increased automation can deliver even greater resilienceand efficiency, while simultaneously reducing risks and costs.

Settlement compression
Against this backdrop, settlement compression has once again
become an important consideration for all involved, along withthe associated trends of digital assets, technology and digitaltransformation. All these are now attracting attention andinvestment from the FMIs interviewed for this paper, as well as
considerable interest from the market participants surveyed.
The forthcoming shortening of the US settlement cycle to
T+1 is one reason for this growing interest, recent periods ofhigh volatility another. FMIs see the major benefit of reducing
settlement cycles as risk reduction, which will in turn enable
lower margin requirements and the release of capital that canbe more efficiently deployed elsewhere. For example, most
FMIs felt that some of this capital could be used to fund more
trading activity, thus driving better liquidity. However, whilemost FMIs felt that these gains would apply to T+1, they would
not apply to T+0 or atomic settlement because of the loss ofnetting benefits and the need to fund gross settlement.
Although this is clearly an area of growing interest, there has
not been much pressure from market participants to shorten
settlement cycles, though this will probably change as nearly
half of the market participants surveyed expect T+1 to arrive
within the next five years.
When they transitioned from T+3 to T+2, some FMIs invested
in technology that would allow them to handle any future
shortening of the settlement cycle. As such, they did not view
technology as a barrier for settlement compression, whereas
almost 50% of market participants indicated that upgrading
legacy technology would be key. Instead, FMIs felt thatbusiness process efficiency and the alignment of processes
among participants posed far greater challenges, noting thatthese had also been demanding during the previous transition.
Other topics discussed included the duration of operating
hours and alignment with cash settlement systems. Neither
FMIs nor market participants saw these as potential
roadblocks to settlement compression and some FMIs havealready instituted additional intraday settlement cycles
to preclude any such issues. However, several Asian FMIs
observed that time zone differences might make it difficultfor US and European investors to source FX cost-effectively.

Digitalization
The biggest opportunities to transform our industry however,lie in digitization, digitalization and digital transformation. The
market is responding in various ways: market participantsand FMIs are actively participating or exploring use cases

Securities Services Evolution

in digital assets, distributed ledger technology (DLT), digitalasset initiatives,2 tokenization and fractionalization. In the caseof FMIs, these were primarily for traditional assets, but they
stressed the wider possibilities of using digital assets for lessliquid markets, such as real estate or art.

4

Technology and digital transformation

The appropriate legal and regulatory infrastructure was also
seen as absolutely critical to the success of digital assets,
not just on a per country basis but also collaboratively
and ultimately globally. Without this, many of the potential
benefits and efficiencies could be lost. This view on
regulation also applied to the success of atomic settlement,
particularly in the context of creating a global settlement
layer that would support all asset types with fungibility. On
the future use of atomic settlement, both FMIs and market
participants were positive, with market participants slightly
more optimistic on the timeline to production.

The FMIs interviewed were also pragmatic about how DLT
could be applied to solve their real-world challenges. Whilea DLT-based market infrastructure was viewed positively byboth FMIs and market participants in terms of efficiency andcost reduction, the FMIs were less convinced that DLT was
key to shorter settlement cycles. They also saw DLT as beinga challenging technology to implement, partly due to a lackof large-scale precedent in traditional markets and partly
as a result of the absence of a dominant set of common
standards. Other technologies such as artificial intelligence(AI) and machine learning (ML) are already being deployed
by FMIs for market surveillance activities or to gain internal
efficiencies. There is further potential for both technologies,
especially in conjunction with DLT, in areas such as reducing
settlement fails and risk-adjusted trade pricing.

As the industry responds to these changing dynamics, it must
do so in a way that does not compromise existing services.
The ability to service both ‘old’ and ‘new’ assets will beessential. In the short term, most FMIs favored separation
between their existing and any new infrastructures for
traditional and digital assets, while acknowledging that
integration was probably ideal in the longer term.

It is clear that new technologies are redefining the future of
post-trade but this evolution will not take place overnight. The
insights from this whitepaper reveal a post-trade environmentthat is complex and full of innovation and activity. Technology
adoption continues apace and there is clearly a strong focus
on speed, efficiency and supporting an extension of asset
classes, while simultaneously minimizing risks and costs.

Key takeaways

1

2

3

The post-trade landscape isfragmented and FMIs are on differing
journeys to settlement compression,
with risk mitigation seen as theprimary benefit. However all FMIs
have invested heavily and continue
to invest in ensuring their systems
are future proof (whether utilizing
existing or new technology).

Digital assets are increasingly
in demand from investors
and FMIs are developing
new products, services andinfrastructures for this evolving
digital asset ecosystem.

Digital transformation is amajor priority for all FMIs
with the potential to deliversignificant cost and efficiency
benefits, both internally andfor market participants.

Securities Services Evolution

5

Methodology
This paper is based upon data gathered from both financial market infrastructures (FMIs) and other market participants
across Asia-Pacific, Europe, North America and Latin America. The geographic breadth and broad spectrum of firmsthat participated has helped generate quantitative and qualitative insights into ongoing developments across the
securities markets ecosystem.

FMIs
A total of 15 leading FMIs (12 traditional, 3 3 non-traditional) participated in one-on-one in depth interviews which took place
between 28 July and August 19 2021. Traditional FMIs interviewed included exchanges, centralized securities depositories
and clearing houses. Non-traditional FMIs interviewed included a digital exchange, a digital asset custodian and a fintech.

Market participants
In order to gauge the sentiment of market participants across the industry, Citi Securities Services collaborated with Global
Custodian to survey almost 400 individuals around the globe via an online poll that ran between 3 August and 1 September
2021. These included, among others, a broad mix of custodians, banks, broker dealers, asset managers and institutional
investors (see Figure 1a and 1b).

1aMarket participant breakdown

43%

12%

17%

Bank

Broker-dealer

Asset manager

11%

13%

4%

CustodianInstitutional investor

Other

Securities Services Evolution

6

Introduction
The securities industry is on the brink of transformational change. New technologies and digitization look set to usher
in not just greater consistency and efficiency, but also completely new asset types and trading opportunities. This inturn calls for greater collaboration among market participants, regulators and FMIs which will ultimately streamline
processes and mitigate potential risks.
The pace of change has been further accelerated by the pandemic, which has magnified three trends that are becoming
the driving force of change in today’s post-trade environment:

Settlement compression

Digitalization

T+2 has become the common
standard over the past few years,
although the planned transition to
T+1 in the US, together with recent
volatility spikes, have made it the
subject of renewed focus.

Demand for digital assets is
growing rapidly, as is the debate
over how to structure and settle
trades for all types of assets,
whether digital or traditional.

1b

Technology and digitaltransformation
Technology and digital transformation
are becoming ever more critical forthe smooth and effective operationof securities markets.

Geographical breakdown of market participants

33%
Europe25%
North
America2%

Middle East/
Africa20%
Latin
America20%
Asia
Pacific

Securities Services Evolution

7

Settlement compression
While most major markets have been on a T+2 settlement
cycle (see Figure 1c) for some time now, the question offurther compression is now back on the agenda due totwo primary factors. One has been an increased numberof systemic and idiosyncratic high volatility periods overthe past two years, caused by the global pandemic andmeme stocks 4 such as GameStop and AMC. The other is the
proposed transition to T+1 in the US (also partially driven byvolatility), with the projected timeline currently suggesting
completion in 2023. In view of the global influence of US
markets, this change is being closely monitored and could
well be followed by other markets around the world.

Risk and margin reduction: releasing capital
The possibility of reducing counterparty risk (and the periodof counterparty exposure) through settlement compression
was a view shared almost universally by the FMIs that wereinterviewed. Periods of volatility that caused spikes inrisk-based margining, and the resulting potential to cause
counterparty failure, were clearly a cause for concern.

1c“When that happens you naturally try andthink about the ways in which you might beable to safely reduce that risk and the margin
requirements to mitigate the spikes. Oneof the most obvious ways is to shorten thesettlement cycle.”
John Abel, Executive Director of Clearance andSettlement, Product Management, DTCC
This was a view shared by other FMIs who were similarly
united in their view that the most obvious benefits ofshortening the settlement cycle to mitigate risk were
the attendant reduction in margin requirements andimprovements in capital efficiency. The overall scale ofthis opportunity is considerable when one considers theamount tied up in margin today and the potential impact
on volatility-based margin calculations.

A typical T+2 settlement cycle

T

Orders and Confirmation
Orders and Confirmation

Trading
Flow

T+1

Trade
Details

Clearing
Flow

Investors(Asset Managers,
Asset Owners)

Exchange

BrokerCentralClearing Party

Settlement
instruction andconfirmation

GlobalCustodian

Sub-CustodiansMarket 1/2/3 . . .
TradeConfirmation*

Novation andNetting
Settlement
Details

T+2

On exchange
settlement

Settlement
Flow

Central Securities
Depository

Sub-CustodiansMarket 1/2/3 . . .

*Note: The trade confirmation with Central Clearing Party can be completed by either broker or local custodian as a delegate.

Settlement
instruction andconfirmation

Securities Services Evolution

2

8What would be the greatest benefit of a shortened settlement cycle for your organization?

Reducing settlement
fails and risks

16%

Better reconciliation
and real-time exception
management

16%

Better cash management/
increasing liquidity

21%

27%

24%

Greater efficiency ininvestment and trading
processes

Most important

23%

32%

29%

44%

1

2

3

40%

26%

24%

4

For instance, in the US, the DTCC believes that a move to
T+1 could bring a 41% reduction in the volatility componentof the National Securities Clearing Corporation margin. 5
In Brazil, B3 estimates a 50% reduction in margin calls for
its cash market for a one day reduction in the settlement
cycle. Others felt that a shift to T+1 could actually
reduce margin requirements by even more, with one FMI
anticipating a possible ~60% reduction. These reductions
could be of considerable value given forthcoming changes
in bank capital requirements.

“Balance sheet and capital efficient trading
models are becoming more important with
Basel IV on the horizon. If you can reduce
your capital requirements as part of trade andsettlement then you can make your balance
sheet go further for a given trading volume.”Peter Golder, Chief Commercial Officer, SDX

Liquidity benefits and other gains
Any reduction in margin requirements (however large orsmall) as a result of settlement compression raises thequestion of how the capital freed up might be redeployed.

25%

21%

19%

13%

Least important

With varying degrees of certainty, most FMIs thought
it a reasonable assumption that investors would recycle
it into increased trading activity, thereby improving
liquidity and potentially reducing dealing spreads.
However, restrictions in some markets on the trading
activities of non-domestic investors might mean any
liquidity improvements there would be limited. For
instance, in certain markets, only domestic investors
can day trade, so any additional capital from overseas
investors could only increase T+1 trading activity. Local
market practice for certain activities might also limit
the liquidity gain for cash equities. For example, in India,
short positions are primarily expressed via single stock
futures rather than the cash market.
While risk reduction and lower margin/capital efficiency
were seen as the primary driver and benefits of compressing
the settlement cycle, there are several other possible
advantages. The first is that the necessary automation
investment required to support a shorter cycle would also
reap operational efficiencies and greater straight throughprocessing (STP) rates. This was also the top ranked benefit
identified among market participants, with 44% regarding
greater efficiency in the investment and trading process as
the most important benefit of faster settlement for theirorganization (see Figure 2).

9Securities Services Evolution

3

Securities Services Evolution

9

What would be the main challenge of a shortened settlement cycle for your organization?

40%
31%

30%

20%

20%

20%
16%

9%

10%

4%
0%
Cash, funding(potential
pre-funding)and liquidity
management

Counterparty
risks

Existing
technology
operating inbatch cycles

Achieving a shortened settlement cycle that can deliver these
efficiencies requires trading and investment processes to be
streamlined and straight through processed end-to-end. In
practice, this necessitates a large number of activities and theirinterconnections being streamlined and automated, including:• Hand off from front to middle office• Trade allocation and confirmation• Instruction generation and matching• Funding and cash flow management• FX booking• Lending for fails coverage• Reconciliation• Exception management
While these changes are achievable, they do underline
the fact that some market participants will need to makeappreciable effort and investment to prepare for any further
reduction in settlement cycles.
Another advantage is that in a T+2 cycle, all systems needto have the capacity to cope with three days’ worth of data
while trades settle. A reduction in the settlement cycle
would therefore also reduce the volume of data, thereby
freeing up additional capacity that could be used to handle
future increases in trading volume without additional
investment. It was also observed that shorter settlement
times should also reduce the need for capital in the central
counterparty and that this might result in a reduction in feesfor participants (and a reduction in earnings for FMIs).

Increased
costs

Market liquidity,
short selling
and lending
programs

Operational
challenges

Netting: so far, but only so far
However, while margin reduction/capital efficiency were seenas the major potential benefits of shorter settlement cycles,interviewees were careful to draw a very clear distinctionin this respect between a transition to T+1 and T+0. It was
acknowledged that in a T+0 environment there was no need topost margin, because by the time it was required, settlement
would be complete. However, the overriding factor would benetting — or rather the lack thereof.

“One of the things that will be impossible in a
T+0 environment is netting off across all yourpositions. From the CCP perspective, you don’t
get any benefit unless you can multilaterally
net and this becomes very difficult on T+0,
so whether a market participant is buying or
selling, they will have to have either available
cash or available securities every time they trade
to ensure settlement. Our compression rate at
the moment is about 180 to 200 executions per
settlement and all that compression happensat the end of the day. That may not happen in
a T+0 environment, because you’re functioning
on a real-time basis instead.”Alex Krunic, Head of Equities, LCH, Ltd

Securities Services Evolution

Similar levels of netting benefit were reported in othermarkets, so collectively the loss of this gain and the hugeincrease in the amount of gross funding required in a T+0
scenario would make a significant reduction in market liquidity
likely, versus the probable increase FMIs anticipated in a move
to T+1 (see ‘Liquidity benefits and other gains’). There was ageneral sense that some market participants were alreadyvery efficient in their collateral management.

“We are seeing a clear shift towards optimizing
collateral, for instance putting collateral in T2S
to create liquidity for the overnight settlement
and then reusing it later in the day in perhaps
the US market.”Samuel Riley, Head of Investor Services and Financing
and Member of the Clearstream Executive Board
However, other participants will probably have to improve theirfunding processes and collateral management, in order tomove to just T+1. Some FMIs are working on, or already offer,tools to assist participants with this, such as Clearstream with
HQLAX, which enables users to tokenize different assets andswap them to maximize collateral efficiency.
Market participants had a less nuanced view than FMIs, seeing
funding as potentially the greatest obstacle/challenge for any
reduction in settlement cycle, both in general (see Figure 5)
and specifically for their own organization (see Figure 3).

10

The status quo: little pressure but muchpreparation
Despite the drivers and benefits outlined earlier, traditional
FMIs are not yet actively working on settlement compression
for the bulk of their securities processing activity and aremostly continuing to operate on a T+2 basis. The primaryreason for this is the current lack of demand from market
participants for further shortening, though another factor may
well be the future proofing many FMIs undertook when theytransitioned to T+2 (see ‘Preparation and strategy’). This isperhaps unsurprising given how relatively recently many major
markets moved to T+2: out of the 54 markets currently on T+2
in Citi’s proprietary custody network, 40 made the transition
within the last seven years. Therefore, a lack of appetite forfurther disruption may well be the reason for participants’contentment with the status quo.
The obvious exception, and one that is being most closely
monitored by FMIs, is the US. The proposed transition to T+1
settlement from T+2 has — after extensive consultation — beenbacked by major stakeholders.6 In view of its very close linkage
with US markets, this timeline is also likely to be adopted by
Mexico, with some other LATAM FMIs also expected to follow suit.
Most traditional FMIs do not see it as their role to dictate the paceof shortening settlement cycles, but have instead undertakena responsive approach to the industry’s preferences. This was
especially evident in Europe where ongoing time-sensitive
projects such as the Central Securities Depository Regulation(CSDR) implementation are currently more of a priority.

Markets Snapshot: T+3 to T+2
Austria*
Bangladesh
Belgium*
CyprusCzech Republic
Denmark*
FinlandFrance*Greece*Hungary*
Italy*
Netherlands*
NorwayPanama2014

PolandPortugal*
Romania*
Slovak Republic*
SwedenSwitzerland*

2016

Australia
New Zealand
Spain*
TaiwanVietnamArgentina
CanadaMexicoPeru
Saudi Arabia
United States

2017

Qatar

BrazilMalaysia

2018

Indonesia
Kazakhstan
Singapore
Thailand

2019

2020

2021

Colombia
Japan* Part of Citi’s TARGET2-Securities (T2S) footprint

Securities Services Evolution

44% of market participants
expect to be on a T+1 settlement
cycle in 5 years’ time

However, judging by the online poll responses, market
participants are anticipating changes in the longer term.
When asked what they expected the prevailing settlement
timeframe for equities to be in five years’ time, only 22%
expected it to still be at the T+2 that is commonplace today.
The majority (~44%) expected T+1 to predominate, whilesome (~18%) thought real time immediate atomic settlement
would prevail, rather intriguingly appearing to bypass T+0,
which only ~16% expected (see Figure 4).
Despite the lack of large scale settlement compression
activity, several traditional FMIs have already compressed
settlement for some of their markets.

“We are already able to settle at T+0 in Sweden,
though volumes are very modest and largely
driven by a small number domestic users.”
Roger Storm, CEO, Euroclear Sweden

4

Another example is HKEX’s Stock Connect (plus thecomplementary Synapse), which already offers T+0
settlement, though not to international investors. Other
traditional infrastructures are also working on settlement
compression for specific activities or assets, such as IPOs
or certain types of bonds.
In addition, all traditional FMIs interviewed are actively
monitoring the situation in terms of both domestic andinternational demand, with one or two currently conducting
client surveys or consultations. Several are running, or havealready completed, proofs of concept for settlement via DLT.
Unlike traditional FMIs, the non-traditional FMIs that wereinterviewed regard T+0 or instant settlement as a logicalimmediate objective — BondEvalue for example is already inproduction with instant settlement. This difference is perhaps
unsurprising given that the non-traditional FMIs are typicallydealing with a relatively new rather than long-establishedtype of clientele. As such, they do not have to contend withthe legacy processes and technology (and those of theirclients) that traditional FMIs have to accommodate.

Preparation and strategy: tech future proofing
Many FMIs had already undertaken considerable contingency
planning, including long term research and scoping, when they
were completing their previous settlement cycle transitions.
They therefore have a head start in the event of rising demand
from market participants.

In five years time, what do you expect will be the prevailing settlement timeframe for equities?

50%
44%
40%

30%
22%
20%

11

18%

16%

10%

0%
Real time, immediate
atomic settlement

T+0

T+1

T+2

Securities Services Evolution“When the US moved from T+3 to T+2, we tried
to identify areas that might be challenging in
the event of future compression and looked at
how these might be resolved.”
Thomas Price, Managing Director,
Operations Technology & BCP, SIFMAOne positive consequence is that the DTCC already has
the operational capability to clear and settle transactions sameday on T+0 with existing technology.7 This was also reflected in
Indeval’s preparations in Mexico — when it transitioned to T+2 in
2017, it incorporated in-depth planning and a robust infrastructurethat would also be capable of supporting a future transition to T+1.
Other FMI projects have also included an element of future
proofing, such as LSEG’s recently completed multiyear rebuild of
its LCH Ltd EquityClear platform. While the primary motivation
for the investment was not compressing settlement, the new
system’s additional capacity and flexibility means that it is alreadytechnologically capable of supporting shorter settlement cycles.
Another FMI also noted that the original design flexibility of theirheritage mainframe and COBOL based system meant that they
were already capable of delivering T+0 settlement.
This future proofing is also a trend in current projects, suchas the ASX’s DLT-based replacement for its CHESS equities
clearing and settlement system. The exchange consulted
on settlement compression when scoping the new system’s
requirements, but this was more focused on having the5

12

optionality to reduce settlement times rather than making
an immediate transition. As a result, the new platform will
already have the ability to support shorter settlement cycles
as and when they are required.

Operating hours: to extend or not to extend
A potential knock-on effect of shorter settlement cycles is theneed for FMIs to extend operating hours, but most didn’t see
the need to do so. This was also largely reflected by market
participants, where only 6% felt that payment and settlement
infrastructure operating hours would be an obstacle toachieving further reductions in the global settlement cycle (seeFigure 5). Nevertheless, there were a few caveats involving
different time zones for certain settlement activities.
Some FMIs have already undertaken work that shouldmake the extension of operating hours unnecessary whensettlement compresses. For example, SGX undertook a major
upgrade of its custody and settlement systems in 2018 andfuture operating hours were taken into account as part of that.
More recently, it has introduced a new intraday settlement
cycle that provides more certainty in terms of settlement bygiving participants an opportunity to take corrective actions
to avoid failed deliveries. This new cycle currently accounts formore than 90% of total settlement activity.
ASX is following a similar approach with its new platform. It
currently operates a single settlement cycle with a cut off at
11.30am Australian Eastern Standard Time. However, its new
CHESS replacement will enable users to settle real-time delivery
versus payment 8 (DVP), after the main settlement cycle.

What is the greatest obstacle to achieving further reductions in the global settlement cycle?

Cash, funding & liquidity management26%

Lack of harmonization of industry standards

11%

Legacy technology

22%

Market liquidity, short selling & lending programs

15%

Payment & settlement infrastructure operating hours

6%

Regulation

20%

Securities Services Evolution

Cash settlement systems: no immediate issues
The capabilities of cash settlement systems are inevitably
an integral consideration when shortening settlement
cycles; there is little point switching to T+1 if the cash
settlement system is still on T+2. At least in the immediate
term, this doesn’t appear to be a major issue for most
FMIs. While several mentioned the potential issues around
FX settlement times outlined earlier, they were generally
unconcerned about domestic cash settlement, as they
were already taking advantage of existing real time grosssettlement (RTGS) or instant payment systems and using
the relevant direct debit capabilities should a shortfall occur
with a particular participant.
However, for settlement at T+0 or shorter, some practicalissues could arise. For instance, one FMI noted that while one
could theoretically clear EUR 24x7 in Europe, in reality, cut off
times would make this impossible. On a more positive note,a possible solution to the need for instant cash settlement
in securities transactions is the use of central bank digitalcurrency. On this point, one FMI has already engaged indetailed discussions with the French and Swedish central banks
about the use of central bank digital currency for securities
settlement and possible proofs of concept. (The Swedish
central bank has already published a paper that mentions thepossible use of the e-krona in securities settlement. 9)

Regulation: enabler or obstacle?
Views on regulation as an enabler or obstacle to a transition
to T+0 ranged across a broad spectrum. A small majorityof FMIs saw it as an enabler, such as the introduction oflegislation supportive of shorter settlement cycles, whileothers noted that they had only observed the transition to amore positive role in recent years. Several regulators werealso commended for engaging proactively on these topics
and generally seeking to facilitate changes and technologythat would promote efficiency while maintaining orderly
markets. Others however felt that regulators in general
should be driving the process of compressing settlement,
rather than leaving it to the marketplace. A few definitely
saw regulation as a major obstacle and cited examples ofregulators insisting upon paper/manual processes that could
be easily digitized to reduce risk and improve efficiency.
Market participants were also slightly negative on regulation,
ranking it as the third most important obstacle to further
reductions in the global settlement cycle (see Figure 5).

Challenge: process efficiency and alignment
Given that many of the FMIs interviewed already havetechnology capable of supporting settlement compression,
it was not viewed as a major challenge. This sentimenthowever was not mirrored by the market participants,
with the majority (~46%) indicating that upgrading or13

re-platforming of their own legacy technology would be
the main key factor (see Figure 6).
Instead, the greatest challenges from a FMI perspective
were business process efficiency and alignment, in contrast
to market participants of whom only 10% saw improving andsimplifying processes as the primary key factor in enablinga T+1 or T+0 environment (see Figure 6).
On the one hand, FMIs felt all participants (including
themselves), needed to refine their individual internal
processes so they would be capable of supporting fastersettlement. Instead of simply trying to accelerate existing
business processes to accomplish this, in some cases newprocesses employing better transaction practices would
need to be designed and implemented.
However, on the other hand, these processes would need to
be aligned consistently across all participants and backed
by a common understanding of the general (as opposed toentity-specific) processes involved. This was a significant
challenge when markets transitioned from T+3 to T+2 andthere was some expectation that this would be even moredemanding when shortening from T+2.
A related coordination challenge mentioned by several FMIs
was ensuring that all participants were ready to go live at
the same time.

“I think aligning all participants to launch at thesame moment is the biggest challenge. That has
definitely been the case for us in the past. If justone participant is lagging the clearing house,that creates a problem for the whole market.”
Daniel Demattio de Oliveira Simões, Managing Directorof Clearing and Settlement, B3
When attempting compression just to T+1, the impact on
the interaction and timing of individual processes within theoverall settlement procedure was also seen as a potential
challenge by FMIs. In a situation where a large numberof institutional trades are confirmed and affirmed on T+1
today, some way has to be found to push those confirms
and affirms onto the night of the trade date (T+0). But thatin turn has an impact on when output can be produced formembers who require it for their own internal calculations.
Some activity-specific processes were highlighted as potential
issues. For instance, there could be a significant impact on
stock loans in terms of timing. When would notification be
given to the borrower? How would the borrower get securities
confirmed and returned to the lender by the settlement date?
Similar considerations and issues would arise with otheractivities, such as the creation and redemption of ETFs.

Securities Services Evolution

6

14

What will be the key factors in enabling a T+1 or T+0 environment?

60%
50%

46%

40%
30%
16%

20%

13%

10%

8%

10%

Extendingoperating hours
for settlement
infrastructure

Improving andsimplifying
operational
processes

7%0%Upgrading or
replatforming
legacy technology

Buy-in from
regulatorsand market
infrastructures

Emerging
technologies suchas DLT

Time zones and FX: temporal squeeze
A challenge raised by several Asian FMIs was the roleof time zones across different geographies. Today,
investors based in later time zones (especially US ones)
are nominally settling on T+2, but in reality, they are
effectively settling on T+1 in Asian markets. This was anadditional reason for these investors to be lukewarm aboutfurther compression in Asian markets, as a shortening justto T+1 would effectively require T+0 preparation.
For example, in India (where the securities regulator SEBI
has just given exchanges the option of settling at T+1 rather
than the current T+2) a switch to T+1 would effectively
move the confirmation cycle for US clients to end of day
T+0. This would leave a very small window for clients toperform trade match off and allocation, and confirmation
to their custodian. Other considerations include less time
for transaction repairs and liquidity challenges around FX.

Reducing market
risk throughharmonizationof industry andregulatory standards“You still see trades with the potential to failrequiring manual intervention. Especially when
trades are being instructed from the US, you
don’t have much time to address such issues.”
Daniel Hildebrand, Head of Digital and Depository Services, SGX“With the bulk of FX liquidity being at spot (which
settles at T+2), any further securities settlement
compression would leave international investors
with the need to source local currency for T+1 or
T+0 settlement. The impact of funding and FX
need to be considered.”
Glenda So, Managing Director, Head of Post Trade, Post Trade
Division, Hong Kong Exchanges and Clearing Limited

While FMIs may not feel it is their role to drive the compression of
settlement, they are nonetheless doing the preparatory groundworkfor it. Possibly because some of them are already partially future
proofed technologically, they do not see technology as much of abarrier to shorter settlement cycles, instead being far more concerned aboutprocess alignment across participants.

Securities Services Evolution

15

Digitalization
The digital assets ecosystem has grown significantly overthe last few years, prompted by new investor behavior
that has given rise to an explosion of digital transaction
networks and disrupted the traditional capital markets.
According to the Fidelity Digital AssetsTM 2021 Institutional
Investor Digital Assets Study ~70% of institutional investors
expect to buy or invest in digital assets in the future, whilemore than 90% of those with an interest in digital assets
expect to have an allocation in their institutional or client
portfolios within the next five years.10

Activity and opportunity: plenty of both
Institutional demand for digital assets was also reflectedin Citi’s online survey where 88% of respondents statedthat their organization was either actively participating
or exploring use cases in digital assets, blockchain or DLT(see Figure 7).

FMI interviewees were similarly engaged with digital assets,with all of them already live with, or working on, digital asset
initiatives,11 tokenization and fractionalization. Whileat present these mostly involved digitizing traditional
assets, some FMIs were keen to highlight the broader
potential of extending into other often less liquid markets,
such as syndicated lending, real estate or art. Apart fromexpanding the range of readily-tradable assets, tokenizationand fractionalization would also enable portfolio trades thatwould hitherto have only have been possible in very large
size due to the high price of individual assets.
Furthermore, as digital assets can capture all the data
pertinent to the asset within them, this provides greatertransparency and automation opportunities, thus making
due diligence and transaction workflows more efficient. For
example, with syndicated lending, the digital asset might
actually show that the underlying asset backing the syndicatedloan was a specific physical asset (e.g. a wind turbine).

Rather than focus on a single approach to digital assets, some FMIs have adopted a multi-strand methodology for digitalassets. For instance, SGX has explored three distinct avenues:

An investment in the DBS Digital Exchange which includes:• Security Token Offerings — A regulated platform for the issuance and trading of digital tokens backed
by financial assets, such as shares in unlisted companies, bonds and private equity funds.
• Digital Currency Exchange — Cryptocurrency trading that will facilitate spot exchanges from fiat
currencies to cryptocurrencies and vice versa.
• Digital Custody Services — An institution-grade digital custody solution to meet the increasing demand
for secure custodial services tailored for digital assets under their prevailing regulatory standards.

Project Hash: a proof of concept for bond issuance, not on a ledger-based system, but instead a smart
contract described in Digital Asset Markup Language (DAML). This has now been officially launched asa JV with Temasek named Marketnode.

Project Ubin: a project initiated by the Singapore government and regulator to explore digital technology.
SGX conducted a successful proof of concept involving a DVP settlement across two separate ledgers (onefor security tokens, one for stable coins).

Securities Services Evolution

7

16

Is your organization currently engaging in digital assets, Blockchain or DLT?

Success factors: the role of government
Despite the opportunities inherent in digital assets, all
non-traditional FMIs (and some traditional ones) stressed
the importance of national government support bypassing securities laws that made necessary provisions.
Switzerland’s Distributed Ledger Technology Act andGermany’s Electronic Securities Act were both cited as
good examples. More generally, government initiatives tofacilitate innovation, such as through the use of sandboxes,
were seen as vital to further development. Without such
legislative and practical support, much of the benefit ofdigital assets would be foregone.
A further need mentioned by several FMIs wascollaboration. In their view, digital asset initiatives should
ideally be a collective global endeavor across FMIs, inorder to maximize the benefits and liquidity of digitalassets. This collaboration was also seen as particularly
important in terms of regulation, with a need forregulators to coordinate across borders and agree on
global standards for digital assets (and other emergent
technologies). “A digital asset with no jurisdiction — how
do you regulate that?” said one FMI.

No plans in the foreseeable future

12%

No. But we are actively exploring use
cases for the near future

34%

Yes. We are active participants in this space54%“As yet, nobody is talking about an industry
standard internationally for a globally regulated
digital exchange, which misses out on many ofthe potential benefits such as interoperability
and economies of scale.” Anonymous
In this context, the value delivered by legislation suchas Germany’s Electronic Securities Act or Switzerland’s
Distributed Ledger Technology Act is obviously constrained
to a national level and forgoes possible efficiencies, such as
netting off of positions against those in other jurisdictions,
thereby increasing capital requirements and costs.

Digital asset infrastructure: separate
or integrated?
One of the questions yet to be fully answered was theinteraction between digital and legacy asset infrastructures.
Would FMIs build digital asset infrastructure alongside
existing legacy asset infrastructure, or build one
infrastructure that could handle both asset types?

Securities Services Evolution

The majority of FMIs felt building alongside was the preferred
option. Of those that thought a single consolidated infrastructure
was preferable, the majority acknowledged that (in the medium
term at least) a parallel infrastructure would be required.

“You have to build a new infrastructure, but it has tobe able to talk to your legacy asset infrastructure.
That’s because there will be a period of perhaps up
to a decade when the systems will be transitioning
from one to the other.”
Rahul Banerjee, CEO and Co-founder, BondEvalue
Meanwhile, some FMIs have already been able to use theirlegacy asset infrastructure to handle digital assets, with B3’s
Hashdex ETF, launched in April, being an example. However, B3
is not committed to this approach and has indicated that it might
opt to use a different platform in the future for digital assets.

Immediate atomic settlement: the criticalrole of regulation
Immediate atomic settlement 12 was seen by several FMIs as
primarily being part of achieving a global settlement layer
where customers could settle any type of transaction for all
types of assets, both traditional and digital, that would also

81750% of market participants
believe atomic settlement
is achievable within 5 years

be completely fungible. However, regulation was seen as
one of the main challenges to this transition, including theissues surrounding regulatory jurisdiction and collaboration
mentioned earlier (see ‘Success factors’). More specifically,
how could regulated instruments from different jurisdictions
and regulators be placed on the same settlement layer so they
settled instantaneously? Some FMIs were quite pessimistic
about how this might be resolved because of the sheer
range of regulatory stances, from extreme conservatism toproactively supportive, that would need to be reconciled.
Several were also unsure about how atomic settlement could
function properly where controlled currencies were involved.
However, in the shorter term, the prospects for traditional
assets being settled separately on an immediate atomic
basis were seen as positive, according to a proof ofconcept conducted by the Chilean central securities
depository (CSD), DCV with the Central Bank of Chile. The
majority of FMIs felt that technology was already mature
enough to support this, with several mentioning that they
did not see questions such as those over scalability as

Atomic/immediate settlement is…

Achievable in the near future(within the next 5 years)

50%

Achievable, but only in thelonger term (>10 years)

43%

Not achievable

7%

Securities Services Evolution

9

18

What will be the key factors in enabling atomic/immediate settlement?

50%
46%
40%

30%
22%
20%
13%
10%

10%

9%

0%
Emerging
technologies
such as DLT

Harmonization ofindustry standards

Expanding market
access for new
investor categories

likely to be long term issues. Nevertheless, most of thosethat expressed a view as to timeline thought it would befive to ten years before this was commonly available in a
production environment at full scale. They also saw it as
a gradual process, probably first involving asset classes
that were simpler and with less inherent risk (such ascommercial paper).
The majority of market participants were more optimisticon the timeline for atomic settlement, with 50% thinking it
was achievable within five years, while 43% took a longer

Reducing the numberof intermediaries inthe transaction chain

Reducing
settlement fails
and market risks

view and expected it to take ten years or more (see Figure 8).
They also strongly favored emerging technologies such as
DLT in enabling atomic settlement, with ~46% ranking it as
their first choice (see Figure 9).
As with a transition to T+0, the loss of netting was seen asa major challenge to atomic settlement and also likely toresult in reduced market liquidity. Similar related obstacles
were highlighted, such as asset managers needing to know
before executing a trade which fund would carry the trade
and would therefore have to provide the pre-funding.

Digitalization is a major trend for both FMIs and market participants,
with plenty of activity across digital assets, tokenization, fractionalization
and DLT. FMIs are mostly still working on digital assets in the context of
traditional assets, but can also see potential for less liquid markets, suchas real estate. However, they regard a harmonized legal/regulatory infrastructure asvital to fulfilling the full potential of digital assets.

Securities Services Evolution

19

Technology and digital transformation
The recent successful testing of a settlement interface
for electronic securities by Deutsche Börse, Deutsche
Bundesbank and Germany’s Finance Agency was yet
another reminder of the impact advances in technology
are having on the settlement process. 13 In that case,settlement was conducted using DLT, but other recent
examples have also combined various technologies tofacilitate settlement, for instance the recent settlement ofa digital OTC derivative using cloud technology plus DLT.14
These are not isolated examples, but more the tip ofa technological iceberg. Elsewhere, examples include
organizations using a combination of multiple technologies
to improve the client experience, such as an AI/ML tool toread and understand incoming emails and then prepare
automated responses after extracting relevant information.
These activities resonated with the FMIs interviewed, whowere also conducting a broad range of activities acrossresearch, proofs of concept and live production projects
using some or all of these technologies.

10

DLT: high profile and high volume?
The ASX’s DLT-based replacement for its CHESS
settlement system reflects DLT’s advancing credibility
for high resilience/performance settlement systems.
Elsewhere, DCV is working on a model for bond issuancethrough DLT with payment outside of DLT, which is
expected go live in the next year or so. While other
FMIs have not yet committed to using DLT for theircore systems, several are already evaluating it andcommented positively on its various features, suchas providing a single authoritative data source.
The lack of scalability has historically been an issue
for distributed ledgers, such as blockchain, but thisis no longer the case.

What technologies do you think will be core to a successful transition to T+1/T+0?

DLT

40%

AI/ML

14%

Cloud

14%

Robotics

5%

Upgrade of existing infrastructures

17%

APIs (Application Program Interface)10%Securities Services Evolution

20

40% of market participants ranked emerging technologies such as DLT
as being core to a successful transition to a shorter settlement cycle“A significant problem until about three years
ago was getting chains scalable enough tohandle the potential volume. However, somevery smart developer communities havebeen working on this and so some blockchain
products are already capable of processing
at transaction rates similar to the major card
processing networks.”
Alessio Quaglini, CEO, Hex Trust
However, FMIs did not see DLT as necessarily essential
for settlement compression, although some did draw
a distinction between T+1 and T+0 on this, only seeing
a role for it in attaining the latter. Meanwhile, those withexisting (non-DLT) technology already capable of supporting
T+0 were understandably less convinced of the need for DLT
to compress settlement. Market participants took a different
stance however, with ~40% of them ranking emerging
technologies such as DLT first as being core to a successfultransition to a T+1 or T+0 environment (see Figure 10).
Though FMIs were mostly positive on the potential for
DLT, they pointed to a number of possible structuralconsequences of adopting it. These included the implicit
removal of intermediaries, particularly in the context ofdisintermediation. The removal of intermediaries could
also introduce additional risks to the system because
services currently provided by those intermediaries would
either have to be offered by others or discontinued. Some
FMIs pointed out that the current chain of intermediaries
to some extent served as a buffer in stressed market
conditions and this buffer effect would also be lost with
DLT, while others felt that DLT could even make certain
activities, such as securities lending, no longer feasible.
When it came to actual implementation, DLT was widely
seen as being the most challenging to implement out of
all the technologies discussed. Two common reasons citedwere the lack of any large scale financial implementation
as a precedent from which to learn (which was one
reason many FMIs were following the ASX’s progress
closely) and the lack so far of any dominant, common
standards to deliver the network effects financial
markets and infrastructures rely upon for efficiency

and interoperability. Apart from the lack of a common
standard, there was the additional consideration that all
participants would need to implement whichever DLT
model was adopted.
Several FMIs underlined that this technology adoption hurdle
was often a major cause of delay and cited various examples,but noted this wasn’t just a case of foot dragging for the sakeof it. Or as one FMI put it: “There will be resistance in theindustry and that won’t just be because people don’t want tochange the way they operate, but because they cannot afford
to change the way they operate.”
This view is understandable when one considers the sheer
size and number of interconnecting organizations in thepost trade space. Therefore, while implementing DLT shoulddeliver long term benefits, in the short term it createssignificant downstream costs for the whole ecosystem.

AI/ML: more to offer
Most FMIs are already using artificial intelligence and/or
machine learning, typically to achieve internal efficiencies,
but again none saw it as critical to compressing settlement.
However, it could have the potential to become increasingly
valuable in the context of settlement efficiency, especially in
conjunction with DLT, or more specifically the centralizationof data implicit in DLT. As all the authoritative data is
contained in the distributed ledger, AI/ML would have far
more complete and coherent data sets to work with thanat present, where multiple intermediaries, each with theirown set of records, pass transactions among each other.
Although a few FMIs are already using AI/ML for detecting
nefarious activities, such as money laundering or market
manipulation, the access to more holistic data was seen asa major advance in this regard — as well as more generally
further reducing manual activities with AI/ML.
Some European infrastructures thought AI/ML had
potential for reducing settlement fails in the context of
CSDR. One example mentioned was recognizing whichcounterparties were best/worst to trade with in terms ofsettlement failure and basing risk-adjusted trade pricing
on the back of that. Another example was if the same
stock was held in two different locations (e.g. the US andGermany) how the relative ‘geographical settlement risk’might be used by AI/ML to guide differential trade pricing.

Securities Services Evolution

Cloud computing: complementing efficiency
While cloud computing was not seen as critical to settlement
compression by FMIs, it was seen as highly complementary
to settlement efficiency. For instance, one CSD has createda data lake hosted in the cloud, which will enable better
management of client requests, as well as supporting tools
to assist clients in maximizing settlement efficiencies andminimizing CSDR penalties.
LCH also highlighted the enormous investment leading
cloud providers had made and how that in practice thatmight mean cloud would be perceived as possibly equal interms of resilience to in-house data storage. Ultimately,that could mean core DLT technology being hosted in thecloud rather than on dedicated in-house hardware.
Cloud computing was seen as relatively easy to implement,
as many participants have already bought into the concept.
However, regulatory restrictions on the physical location ofdata have proven to be a barrier to implementing the cloudin certain jurisdictions.

11

Technology gains for market participants:
FMIs’ views
FMIs saw DLT, cloud and AI/ML benefiting their market
participants in various ways, with cost savings high on
the list. One FMI had this made clear to them, when
discussing DLT technology with a bank client and foundthe execution team turned up, but no one from the middle
or back office. The execution team were keen to reduce
costs and so had attended en masse because they saw DLT
as a means of achieving this. This resonated with the poll
results, where 64% of market participants felt that DLT
would significantly or moderately improve overall market
efficiency and reduce cost (see Figure 11).
Efficiency gains were seen as being of similar importanceto cost savings. Cloud in conjunction with AI/ML wasa good example of this by enabling very high volume
scalable analysis and decision making. JPX also sharedthat while DLT had been the main topic of technology
conversations with its market participants, this had more
recently been superseded by AI/ML.

A DLT-based market infrastructure would…

50%

41%
40%

30%
23%
19%

20%
12%
10%
5%
0%
Significantly improveoverall market
efficiency andreduce costModerately improveoverall market
efficiency andreduce cost

21

Reduce both market
efficiency and cost

Improve market
efficiency, but atincreased cost

Have little impact
on overall market
efficiency and costSecurities Services Evolution

A few FMIs felt that the process improvements inherent
in a shorter settlement cycle, rather than any particulartechnology, would deliver the greatest benefits to market
participants and that these might ultimately influence theprice at which trades were done.
Technology continues to have a significant impact on theoverall settlement process, however as mentioned above,
FMIs were relatively sanguine about its significance as afactor in reducing settlement cycles. A much higher priority
cited by most traditional FMIs was the need to get buy-infrom clients and coordinate them all in any migration to newprocesses and settlement timelines.
While technology is ultimately only an enabler, market
participants responding to the poll nevertheless saw
it as the main priority, with nearly 50% regarding
upgrading or re-platforming legacy technology as themost important factor in enabling a T+1/T+0 environment(see Figure 6).

Digital transformation: accelerated reality
Digitization is poised to transform the securities services
industry and the recent pandemic clearly accelerated thepace of transformation. Almost overnight, the benefits ofdigitization moved from theoretical, to practical and essential.
This sentiment was echoed by interviewees who wereclear that digital transformation was a major priority
for their organizations — several of them had dedicatedmanagement/departments devoted to this. Some had evenconducted in-depth analyses of working processes as partof their pandemic response and had been surprised at
the number of paper processes and documentation they
discovered. Digitizing internal documentation had therefore
been a priority but also a relatively easy win.
However, digitizing external documentation/processes was
generally perceived as adding the greatest value. One exampleof this has been SGX’s drive to digitize all interactions its CDP
depository subsidiary has with its retail and direct corporate

22

clients. It has introduced SGX Investor Portal to replace
previous paper processes, which appreciably streamlines
investor activities ranging from updating personal details,
to participating in corporate actions.
Government and regulatory support is key to this, particularlyin activities that involve identification. In the case of Singapore,government initiatives such as Singpass, Myinfo and SGFinDex
have all materially supported SGX’s digitization efforts,
allowing it to complete account opening within 15 minutes andsignificantly reduce call center talk time. However, a number of
FMIs countered this by observing that in their cases, extreme
caution on the part of local regulators posed challenges
to their digitization efforts and effectively enforced theretention of inefficient manual/paper processes.
APIs were also cited by FMIs as an important aid to digitaltransformation by accelerating processes and removing manualintervention, with several of them running projects to increase theuptake of APIs by their participants. Agile methodology 15 was also
raised as an important tool in digital transformation, especiallywhen contrasted with the traditional approach of pursuinglarge monolithic projects involving multi-year timelines.
As one exchange put it: “Using agile we are achieving
multiple deliveries with each one focused on the bestsolution available at that point in time, rather than what
was the best three or four years ago.”
While most FMIs focused on the technology required
to support digital transformation, Monte Titoli (part ofEuronext group) made a point of stressing the culturalchange also required. In its particular case, that involved alarge investment in training and education over a three year
project, but was seen to have delivered value because, bychanging the collective mindset, the organization was able
to innovate far faster and deliver more efficient processing
to clients. It also meant that the concept of continuouschange and improvement had become naturally engrained.

FMIs see DLT as having promise in terms of efficiency but, unlike market
participants, only some see it as crucial to shorter settlement cycles andeven then only for T+0 and atomic settlement. They see DLT as challenging
to implement in comparison with other technologies they also regard aspromising, such as AI/ML and cloud. Digital transformation is top of mind for all FMIs
interviewed, but regulation was again mentioned as a possible obstacle to this.

Securities Services Evolution

23

Conclusion
The market volatility at the beginning of the pandemic
underlined the critical role that FMIs have in ensuring thestability of the global financial system. As part of that role,
FMIs are already looking at how they can further reducerisk by shortening settlement cycles and adopting newtechnology, as witnessed by DTCC’s planned transition to T+1,
plus its DLT project that has the potential to deliver T+0.

To that end, they are very aware of the need for standardization
to ensure interoperability and maximize the network effects thatwill deliver efficiency gains, cost savings and future flexibility.
Market participants are clearly aware of the need for them tokeep pace with this digital transformation and while this may
be neither easy nor inexpensive, those that do not advancedigitally may ultimately find themselves displaced.

Most FMIs are in a stronger technological position than market
participants to make this transition, as they had already future
proofed their technology during their previous transition (fromT+3 to T+2). In addition to DTCC, other FMIs are also working
on a number of DLT-related projects. While they appreciate its
potential for faster settlement, they see a more valuable rolefor it in conjunction with other technologies (e.g. AI/MI andcloud), for instance to reduce settlement failures.

While the long term trend is towards greater standardizationof global standards, in the medium term at least, markets andregions will continue to progress at varying speeds dependingon specific priorities and the regulatory environment. On
that note, FMIs see the role of regulators and legislators as
absolutely critical in providing the necessary framework tofacilitate progress.

Despite their considerable investment in new technology, FMIs
are very clear that it is a means to an end, not an end in itself.
For them, the priority is to design and implement the mostefficient business processes and then leverage technology tosupport those processes in the most efficient way possible.

Collectively, our interactions with FMIs and market participantsreveal a securities industry in a highly positive state of evolution.
Much preparation is underway and there is growing acceptanceof disruption (both technological and process) as a positive inshaping the future of securities markets.

1	Digitization: convert data (e.g. in document form) to a digital format.
Digitalization: convert business processes to use digital technologies,
rather than analogue or offline systems such as whiteboards.

2

	DTCC’s Project Ion and Project Whitney: https://www.dtcc.com/news/2020/
may/18/dtcc-unveils-proposals-to-explore-further-digitalization

	Traditional FMIs were defined as long standing exchanges, centralized
securities depositories and clearing houses.

3	A stock that has gone viral online, attracting the attention of retail investors.

45https://www.dtcc.com/news/2021/february/24/dtcc-proposes-approachto-shortening-us-settlement-cycle-to-t1-within-two-years

6	The Securities Industry and Financial Markets Association (SIFMA), theInvestment Company Institute(ICI), and The Depository Trust & Clearing
Corporation (DTCC)

7

https://www.dtcc.com/dtcc-connection/articles/2021/august/20/
accelerating-settlement-why-t1-settlement-is-right-approach-at-this-time8https://www.bis.org/cpmi/publ/d00b.
htm?&selection=26&scope=CPMI&c=a&base=term

9

 ttps://www.riksbank.se/globalassets/media/rapporter/pov/artiklar/hengelska/2020/200618/2020_2-e-krona-design-models-pros-cons-andtrade-offs.pdf

10https://www.fidelitydigitalassets.com/articles/digital-asset-survey-2021

11

	DTCC’s Project Ion and Project Whitney: https://www.dtcc.com/news/2020/
may/18/dtcc-unveils-proposals-to-explore-further-digitalization

12

	The transfer of two assets linked so as to ensure that the transfer of one
asset occurs if and only if the transfer of the other asset also occurs.
Settlement is therefore conditional, so the outcome is either a full andsuccessful exchange or assets, or no transfer taking place at all.

13

https://www.bundesbank.de/en/press/press-releases/dlt-basedsecurities-settlement-in-central-bank-money-successfully-tested-861444

14

 ttps://www.marketsmedia.com/first-fully-digital-settlement-of-otch
derivative-in-germany/

15

	Agile methodologies use incremental and frequent deliveries of small segmentsof functionality, delivered by small cross-functional self-organizing teams,
involving frequent customer feedback and course adjustment as required.

Securities Services Evolution

24

Acknowledgements
We would like to thank our financial market infrastructure partners, industry associations and clients who have contributed
their time and insights to this whitepaper.

The material provided is for informational purposes only. Information is believed to be reliable but Citigroup does not warrant its
accuracy or completeness. Citigroup is not obligated to update the material in light of future events. This does not constitute a
recommendation to take any action, and Citigroup is not providing investment, tax accounting or legal advice. Citigroup and its
affiliates accept no liability whatsoever for any use of this information or any action taken based on or arising from the material
contained therein.
© 2021 Citibank, N.A. (organized under the laws of USA with limited liability) and/or each applicable affiliate. All rights reserved
by Citibank, N.A. and/or each applicable affiliate. Citi and Arc Design is a trademark and service mark of Citigroup Inc., used andregistered throughout the world.
GRA34759

10/21