Deutsche Bank preps for world’s shortest stock settlement system

Bloomberg

India is rolling out the world’s shortest equity trade-settlement cycle. A pain-free transition for foreign investors would spur others to follow, according to Deutsche Bank AG, the largest custodian bank in the country.
Higher currency transaction costs and the risk of operational delays are among concerns that have been flagged as the nation’s exchanges leapfrog peers in New York and London with a next-day settlement system, compared with the two-day practice of most markets. The rules for foreign investors take effect around October.
Deutsche Bank, which shepherds two of every five offshore investors in the country, is seeking clarity on how its overseas customers across timezones will access rupee funding and brokers quickly share information as it prepares for the change, Paul Maley, Deutsche Bank’s global head of securities services business, said in an interview in Mumbai.
Across the market, India’s proposal is winning admiration and concern alike. Supporters say it’s an innovation that will set the stage for instantaneous trades in the near future.
The biggest concern from customers is that transaction costs may rise because of a lack of liquidity in off-market hours, Maley said. “For foreign portfolio investors, the key challenge is availability of a partner that can help book forex trades efficiently on the same day,” he said. “It is important that transaction costs do not increase significantly in this process.”
The German bank can offer forex conversion quotes during off-market hours to clients, according to Maley. It’s also girding itself for the transition by moving some of its core platforms like custody and payments to a cloud-based environment, while focusing on data security, privacy and regulation, he said.
Deutsche Bank, with more than $200 billion of foreign-investor assets under custody in India that accounts for about 40% of its business in the country, is setting up a branch in the new international finance center, widely known as GIFT City. Targeted for the second half of this year, the branch will allow the lender greater ability to deploy foreign currency funds, helping to facilitate funding options for clients, he said.
If India manages to pull off T+1, other countries could follow, Maley said. “If you can manage through the complexity of market structure successfully in India, there is even less of an excuse to not implement the same standards somewhere else.”