Effective Collateral Management in a T+1 Environment with EquiLend Exposure

The shift to T+1 settlement has been discussed at great length from a North American perspective. The reduced timeframe for trades to be settled adds increased pressure to operational processes, risk management and collateral allocation. With the UK and European Accelerated Settlement Taskforces recommending the joint transition to T+1 by the end of 2027, the UK and Europe are set to be the next launch pads for T+1 settlement, presenting additional challenges in managing collateral efficiently. 

For the U.S. and Canada, collateral management and mobility has met challenges in the shift to T+1, none of which have been insurmountable. However, a Citi Bank report on the transition to T+1, published in September 2024, found that “cash, funding and liquidity management were top obstacles, with legacy technology also a challenge.” In part, the smoother switch is related to the U.S. preference for cash collateral, significantly simplifying settlement on a shorter cycle. It is interesting to note that U.S. market participants even found this element of the transition a challenge.  

When accelerated settlement reaches UK and European shores, we anticipate a greater need for vendor tools to manage collateral, as these regions rely more heavily on non-cash collateral and pledge structures. By its nature, non-cash collateral is harder to release and move, quickly presenting greater challenges for technology to solve. Delays in reconciling and settling transactions can lead to failed trades or penalties, which is especially problematic with regional regulations like CSDR impacting European-settled trades. Basel III has a potential future-looking impact for securities finance firms who may be required to hold additional liquid collateral as a buffer, a complexity which will play out following the anticipated go live on July 1, 2025. For now, as firms initially adjust to the concept of shorter settlement windows, tools which reduce latency by ensuring timely and accurate collateral management are crucial to maintaining adequate liquidity and operational efficiency for firms.  

EquiLend Exposure offers a robust solution tailored to these challenges, providing a comprehensive platform for managing tri-party RQV submissions, intraday collateral updates and real-time exposure management. Pre-matching via OneFile ensures both counterparties have visibility of trade and collateral details earlier in the trade. This centralization of the collateral process allows both lenders and borrowers to track discrepancies at a granular level, mitigating the risk of overcollateralization or mismatched values.  

EquiLend Exposure’s dispute process support uses Trade ID for easy dispute agreement by identifying differences that could lead to a mismatch earlier. The RQV Discrepancy Module enables identification of the source of any collateral funding issues via RQV ID, where there could be a mismatch in funding requirements. By expediting collateral processes for firms–assessing accurate funding collateral requirements and identifying collateral mismatches earlier in the process–the risk of settlement failures and penalties under T+1 is reduced with a clearer view of the collateral status across various stages of a transaction. 

EquiLend Exposure forms part of the EquiLend T+1 solution, providing further operational agility with seamless trade matching via NGT and efficient settlement monitoring and advanced automation of returns and recalls with EquiLend Risk Resolution Suite (R2S) to reduce the need for manual interventions. EquiLend’s T+1 solution enables firms to adapt to the accelerated settlement cycle without increasing the operational lift. Crucially for European firms, the collateral management aspect of our T+1 solution ensures latency is reduced. 

EquiLend Exposure serves to create a streamlined workflow that addresses the compliance needs of T+1 and enhances collateral efficiency for firms, ensuring market participants can continue to operate effectively in a faster-paced T+1 settlement environment. EquiLend’s holistic approach—covering front, middle and back-office needs—positions us as a critical enabler and partner for firms navigating complex collateral in the T+1 transition.