00:06:27 Julia McCarthy
You touched on innovation earlier. Let's stay with that for a minute and talk about how innovation is supporting the transition to T+1 in terms of faster visibility of data and information for our clients.
00:06:46 Julia McCarthy

00:06:49 – 00:08:25 Tara Taylor
I think it's an interesting point because we've always felt we were pretty quick today with that information so from a technology perspective, we looked at all of the points where we thought a client may need information faster, more broad, more in-depth information. We already had a lot of those touch points in terms of internal reporting, connecting it through SWIFT messaging, dashboards, things like that, but one thing we didn't have was actually a view into our system.

So one thing that we did, which we just rolled out in Q1, is an actual dashboard; that’s real time to see all of your transactions as they're actually happening. This was pretty innovative because a lot of our automated trading processes were just that, that happened they were automated, clients didn’t have a view. They would find out after the fact where they would get their fill information and their trade completed information sent to them. Now, they have the opportunity to be part of that, and see it as it's happening real time. This is something that we've expanded through our Global Link product so you're able to see not only your FX transactions, but any of the other products that you're using, like Fund Connect, some of our algos, and some of our other online execution platforms.

But with StreetFX, it was a real advantage because as clients look for that automation to be able to connect and get those trades sent automatically, they can also see it in real time. They're hands off, but they're really still hands in it.
00:08:24 Tara Taylor

00:10:10 Jeff Sardinha
Previously, I mentioned how we're in an intraday, more real time basis for an ETF. I think part of the reason we can actually do this here at State Street is because all of our ETF technology and all the technology across the bank that supports ETFs and mutual funds are all proprietary global technology for us.

Our ETF technology stack is all proprietary and it's a single solution, meaning we can drive the innovation without a third-party vendor. We're not going to vendors to get upgrades to systems. We have ETF experts internally that work with our ecosystem that want to understand what the ecosystem needs. It’s not only what our clients need, but what do our clients’ clients require and what is the ecosystem looking for to make sure that these ETFs continue to be as cost effective as possible and being able to go and drive those innovations.

Once we drive it in one location, it's available on all, and what we tend to notice on the ETF solutions side when we're looking globally is that there are themes occurring within the ETF industry, they may begin in one location, but they start to make their way around the globe. So, if we've built something in one jurisdiction because there's some innovation that's upcoming, you can rest assured that likely in the next year or two that'll be an innovation, and we're already able to support from a day one perspective in the marketplace.

I think having the global proprietary technology and ETF expertise we have internally has allowed us to make sure that we're prepared, and we can support any new innovation on a day one basis for any clients in this ever growing, expanding ecosystem.
00:11:44 Jeff Sardinha

Katherine: Donna, May 27th and 28^th this marks a big moment for our industry. It's going to be ushering in this transition to the T+1 security settlement across the U.S., Canada and Mexico. So describe for me a little bit about how our understanding of the broader ecosystem has allowed us at State Street to innovate ahead of this T+1 timeline.

Donna: You're right, T+1 is pretty seismic. You know, having lived through T3 to T2 and now T2 to T1, you know, it's really different. First of all, and I think it's also important to remember that, State Street is, you know, pretty important to the global financial infrastructure. So every day we see more than 10% of the world's investable assets flowing through our platforms for either custody, or accounting or fund admin. And that gives us a unique vantage point to really help our clients and the industry in situations like T+1. So we can see both macro as well as regulatory trends. We can look at first order impact as well as second order impacts. So in terms of operational readiness, we have internally of course set up all kind of comprehensive enterprise wide program management, but it's really on behalf of our clients so that we can not only be operationally ready but we can work with our clients so that they're operationally ready. We have done impact assessments. We've enhanced our existing IT infrastructure. We have looked at our operating and service models as well as our current capabilities to figure out what else we could be doing for our clients and the industry. We participate in industry forums we've done with all the market infrastructures around the world that are impacted by T+1. We engage with regulators. I mean, that's our role. Like we must we must be on behalf of the industry really, really ready. We've also participated in industry testing that has, kind of been happening continually throughout. And really we started planning for all of this, kind of way back at the very beginning when the SEC and DTTC were really thinking about accelerating settlement. When you think about the affirmation process, it's really important that clients understand, especially our non-U.S. clients who are participating in U.S.assets, that automation is really key. The trades need to be affirmed by 9 p.m. Eastern Time on T0 on Trade Day in order to guarantee settlement on T+1. That'll be difficult for anyone who's still in a manual environment in any way, especially if there are non-U.S. client trading in U.S. assets or Canadian assets for that matter, especially as they get closer and closer to that 9 p.m. cutoff, they're going to be having a harder time guaranteeing that they won't fail on T+!. And also, I would just add that, you know, that CLS have made their decision not to not to go to T+1 o the're still on a T+2 basis. That has ramifications as well. My Global Markets colleagues will, really work and have been working on providing solutions for. So if you think about the ETF market, for example, since we look ahead and really can see what's coming, have really worked super hard to get the primary market to T+0. That way we can ensure that the ETF market continues to run smoothly.

Katherine: So our liquidity venues, services and technology platforms and partnerships with external providers and facilities like DTCC, all of this forms this kind of vibrant industry ecosystem. And it's all meant to support our clients through this really massive transition. So talk to me a little bit about howwe've shaped our technology and services platforms and our footprint to really kind of help accelerate things like interoperability, connectivity and importantly, resiliency across this ecosystem.

Travis: The reality is our liquidity solutions don't thrive without the right platform, and operational efficiency and the ability to meet our settlement demands is key and core and critical to our services that we provide in markets. So when you think about that impacts from, market settlements, impacts from timing, from delays, they all play into our clients portfolio strategies. And it's critical for us in markets to maintain trust, dependability of our clients for the credibility and credibility we earned through the settlements, through meeting these regulatory deadlines on behalf of them to maintain our leadership in the marketplace. And this goes across our products in foreign exchange securities lending, financing, our outsourced trading services that are portfolio solution services and some of our other portals that service ETFs and other types of products. So it's critical across State Street that we leverage our market infrastructure as a leading financial institution, to plug in to create these partnerships so that not only can you meet the regulatory requirements, but we can also have you leverage this evolution,to provide,you know, more alpha, better trading strategies so that our clie nts who are managing portfolio strategies are capable of not only maintaining their strategy but now to potentially benefit from these additional services as we evolve through a more efficient environment.. So we're looking at this kind of across products, the solutions, the timing, the meeting the same day, affirmation in our FX, you know, some of our solutions, our Street FX our solutions around our fund financing services. Those are all meant to really accelerate, not the requirement, but to kind of turn that on its head and to evolve this environment that's much more efficient in a market that is highly dependent on that credibility and trust for those clients.

Katherine: Automated trade affirmation with DTCC. That's critical to meeting these compressed timelines now. So talk to me a little bit about how our post-trade and settlement technology is really, really helping clients address this challenge and this kind of new milestone.

Travis: So you’re a portfolio strategist you're running in different jurisdictions where, you know, maybe they haven't evolved or moved to a T+1 settlement environment. They're in T+2 or T+3. Now you're running cross currency strategies, you're running cross asset strategies where you're potentially hedging this as well, where you're running FX transactions, you're running sells and buys across these different jurisdictions. You create risk, you create a risk of fails because now you're going from a T+2 settlement to a T+1 You're potentially impacting overdrafts, you're creating these costs on your portfolio that you really have to look at closely, that if you're trying to benchmark or keep up with your peers, you want to make sure you're minimizing these costs so you can really focus on your portfolio strategy. So those costs you need to really address through these types of solutions and if you think about our StreetFX solution that, you know, helps kind of bridge the T+2 to T+1 settlement across these currencies through a very rapid, efficient way to kind of construct an FX settlement on the back of these security buys and sells. If you think about the risk of overdrafts on your custodian, so overdrafts can be costly and very expensive no matter where you're at or what custodian you use. Having ways to bridge these funding gaps in a very portfolio efficient manner. Whether that's the repo through efficient types of facilities using your custody base if you’re a custody client to leverage those assets unused in house to offer forms of financing, really reduce that drag. And that's what we're here for is to listen to our clients, to evolve our products so that we can leverage our liquidity, our access to liquidity to minimize this cost and really bring it back to the portfolio manager who really just needs to focus on what they're doing, and perhaps benefit from this. Our commitment to DTCC to other market infrastructure players to address these services across all of our Global Markets products. Securities lending, the settlement process there has been critical. We've taken big investments there on top of the FX side. Those are all things we're doing and leveraging the benefits of how we play in our principal businesses as well. To carry that over to our clients and to benefit them.

Donna: I would just add, Katherine, that for the asset servicing aspect of this, which feeds into what the portfolio manager has to deal with, if we get that affirmation happening on T0, it really reduces a lot of the risk that Travis just kind of highlighted and puts less less risk in this use of like bank balance sheets for overdrafts and failed trades. So we have also been working on kind of product expansion to make sure that we're ready with solutions for T+1. We've put within the kind of custody complex a lot of capabilities on real time activities. So real time cash availability, understanding like that, like a reconciliation. We've been helping clients use us as their affirmation process, which we can do with their affirmation ideas, etc. Also encouraging them to work with DTCC on their match-to-instruct product as well as their CTM product. So all of the things to kind of reduce the probability of that, you know, settlement risk. But you know, we have both financing capabilities as well as capabilities in the and within the custody and asset servicing complex. And then we can talk about things that we’re doing with clients. I'm sure you're going to ask about how we're working with them to make sure that they pre-position their cash so that they're not failing trades.

Katherine: Are you seeing a discrepancy between how some of the world's largest institutional investors are prepared for the regulatory shift versus some of the smaller and mid-sized clients?

Donna:  In some ways there's no difference, meaning I think clients are really focused on this. You know, some of it is because we've kind of brought that to them, especially the small and medium sized clients. As you would expect they just don't have the same infrastructure to really manage this on their own. So they are relying on our solutions even more. Some of the newer solutions that I was just talking about, but they're all very, you know, taking this very seriously. They understand there's a real difference, as I said, from going from T+3 to T+2 to T+1 which is really a T+0 kind of environment. And I think that they're that, you know, with every month that goes by, there's more realization that that's the case. And so that puts more spotlight on this whole notion of liquidity and how to manage cash. And what's that going to look like, not only in returns for the portfolio manager, but in like greasing the system from a settlements perspective. So, you know, we find ourselves working with clients more and more that way. And I'd say the small, medium sized clients are really depending on us to help them through that affirmation process I was just talking about. And I'd say the bigger, you know, kind of bigger global clients that have operations and investors who are investing in US assets from you know,  portfolios where the trade is happening you know, kind of not in the US or Canada are, are really focused on their cash positioning to make sure that they are not failing trades. The other thing that's very similar is the increasing need to standardize. Standardize you know, trading and operations in our services and expedite processes. So I talked already about how the affirmation process has to be done by 9 p.m. Eastern. That requires a lot more straight through processing. So investment in technology, partnering with a service provider that can actually give you that capability is becoming more and more important.

Katherine: There's a lot coming at our clients. How can we help clients really align their funding and equity workflows, to reduce shortfalls, failed trades, operational issues?

Travis: This is not a one size fits all, these are client discussions. Everyone's got their unique situation, there's jurisdictional limitations, there's a number of things. And maybe the first step to compliance or to improve your management strategy around these operational deficiencies isn't is a two or three step process. So we're here to help address and bridge the gap in a number of ways, whether it's permanent or short term. When I think about the comment around the risk of funding gaps and overdrafts and risks to kind of manage with cash positions and create that fluidity in the system, it's really, you know, we have products like Repo for short term financing. We have facilities that we can kind of step in and provide on a dynamic basis so now that there are commitments, there's, you know, one offs that you can kind of use to kind of manage your pre-funding or you're going to bridge the gap between jurisdiction approaches and strategies. So we're here to kind of create a custom approach with some of the tools we have with us on the FX side. You know, we have a number of products, there's ways to kind of we've got our Street FX product. We also have outsourced trading services. If you're running a shop in APAC and you're worried about how can I manage my US. hours and settlements across some of these, these are solutions that I'd encourage. It’s never again, it's not a one size fits all. You can talk to us evolve we create a solution, and we've got a number of tools to service you with. And that's what we're here for at the end of the day

Katherine: Donna, your final thoughts?

Donna: So I'd say, you know, it's really a question of engagement. I think it doesn't matter if you're a Global Markets client portfolio manager or you're someone who's really managing the operations. You really need to partner with your with your service provider. And if you think about where this risk of fails and therefore overdrafts or if they're going to pre-fund to make sure that that doesn't happen. Either way, you want to take maximum opportunity to utilize the custodial assets you have in process, either through working with global markets on a kind of a repo or a secured financing basis or, you know, credit financing altogether or with the FX product, but also, you know, working with your bank to make sure that they're there for you because you can't depend on the banks balance sheet. This is not a Y2K moment where like it's the week of Y2K and then you're done. This is going to go on for like six months, maybe longer. We saw that already. We had a dry run. So, you know, you really need to be engaged. So it's really, to me, a question of partnership and engagement that's critically important right now. And of course, I'd say partner with the firm that can actually look ahead to really anticipate not only what's going to happen right around that May weekend, but in the six months after. But how does that impact these other markets on the public trading side that, you know, maybe people haven't really thought about.

^*As of March 31, 2024