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The US takes a big step to a shorter settlement cycle for securities trade this year and Europe needs to catch up

A big change is coming early this year in the way US markets operate, with a shift to a shorter settlement cycle for trades in stocks, bonds and exchange traded funds. Most US settlements will move from T+2, or two business days after the trade is agreed, to T+1.

This is very important for the future health of markets and a step long sought after by regulators, lowering trading costs and making the settlement of trades much more efficient and reliable. 

The change should roughly halve the outstanding volume of executed but not settled trades, and so make a big reduction in counterparty risk. In the longer term, it offers the opportunity to modernise and digitise the settlement processes.

The shift to T+1 will involve quite a lot of work for US market participants. Accounting systems will need to change and will need to operate more rapidly to minimise trade failures, which can be very costly to remedy.

Stock exchanges around the world have been developing their T+1 strategy in response. But European exchanges are so far less prepared for T+1 than others and they will still be operating on T+2 settlement cycles when the US move comes.

Asset managers have warned of a “major and serious risk” to European capital markets if local regulators do not follow the US lead. In general, markets that don’t offer T+1 should be expected to see declining liquidity and to lose out to any competitors who can trade the same securities with such a settlement.

This is because global portfolios are mostly managed in dollars. So switches from European equities to the US will need short-term financing of trades to cover the longer settlement cycle. Meanwhile, switches from US equities to Europe will generate short-term money balances as American trades are settled more quickly, needing placement.

In London the choice has sometimes been framed as either go with the US and T+1, or with Europe and T+2. Indeed, if London, or another European exchange, were now to go to T+1, that could be a way to pick up significant market share.

However, I suggest over time all exchanges globally are headed towards T+0. If a reduction in the settlement cycle reduces risk, then why not eliminate counterparty risk completely by moving to T+0? One issue would be that netting — the offsetting of trades — sharply reduces the need for capital to support trading. If all settlement became instantaneous, then netting would be impossible, reducing liquidity in markets.

Also, instantaneous settlement would be likely to cause a big increase in failed trades, unless market technology infrastructure was at the same time improved. But T+0 could mean same-day settlement rather than instantaneous. Netting could be at the end of the day or multiple times a day and leading to settlement at the close of trading or after each netting. I suggest T+0 will come eventually, but that may be a decade or more away.

The need to demonstrate capability to fund trades in T+0 probably dictates that systems will need to share data using distributed ledger technology, or blockchains. I am surprised so far to have seen only relatively small experiments with blockchain in settlement.

This use of technology will make a big difference to what is possible for the settlement system. As an aside, blockchain technology could also enable a big reduction in the costs of reconciliation — checking trades are verified — incurred by asset owners, asset managers, registrar and custody banks.

The term “atomic settlement” is often used among trading and technology people. The expression started in crypto, but has developed quite a specific meaning in securities. It implies settlement that is simultaneous and instantaneous. As described here, simultaneous settlement is very important and positive for the global investor. But the need for netting makes instantaneous trade settlement very unlikely. T+0 would also need substantial technology development.

Will the change to T+1 be cost justified? It’s hard to say, but like many risk reductions it is being mandated by the regulators.

T+1 has been much discussed among traders and technology people, but has not yet apparently received much attention from the top executives in most asset owners and asset managers. But this is an important shift that has both risks and opportunities. Over the next six months it will need an increased strategic focus.

A lack of new-build luxury homes in the exclusive London area is causing wealthy buyers to opt for elsewhere or rent

Mina has been trying to sell her six-storey town house on Ovington Square in Knightsbridge for more than three years. The hedge fund manager, who declined to give her surname, and her lawyer husband relocated to central London from New York state in 2007 and fell for the home’s stately salon “made for entertaining” — a former owner once entertained Pablo Picasso and the Russian ballet dancer Anna Pavlova. 

“The house is an acquired taste, and buyers seem to want more modern homes,” says Mina, who divides her time between the UK and US. She thinks her home will probably be sold to an international buyer who will “come along and gut the whole thing”.

Her property is in one of London’s most exclusive neighbourhoods, favoured by wealthy international buyers, but it is not the only one sticking on the market (at £10.95mn, through Knight Frank). Among the many that have had their prices reduced are a one-bedroom flat near Hyde Park, now available for £1.05mn, 25 per cent less than it was listed for last May; and a three-bedroom house near Harrods, which has had its price cut by £1mn since it was listed in September for £4.75mn.  

Thanks to a sharp rise in the cost of renovating, many of those homes struggling to sell need work, says Becky Fatemi of estate agents UK Sotheby’s International Realty. The Knightsbridge market is divided: “It’s turnkey or a fire sale,” she says. “Buyers who can’t find the new-build they want are looking at other areas — or renting.”

International buyers have been slower to return to Knightsbridge after the pandemic than to other areas. Last year the average property sold for 12.4 per cent below the asking price, according to LonRes, which tracks the prime central London market, where the average is -9.4 per cent. Properties in Knightsbridge also took longer to sell, on average. 

Middle Eastern buyers, a mainstay of Knightsbridge’s pre-pandemic market, only really reappeared at the end of last year, says Paul Finch of Beauchamp Estates.

Some buyers are looking to Mayfair instead, enticed by its wider choice of super-prime developments and newer private members’ clubs. Last year one of Finch’s buyers from Abu Dhabi thought they wanted Knightsbridge but couldn’t find what they were after so bought two apartments plus a staff flat in Greybrook House in Brook Street for £30.45mn. “It shows that buyers are product driven, rather than wedded to an area,” he says.

The average price per sq ft of a flat sold in 2023 in Knightsbridge, at £2,066, was 8 per cent less than its 2017-2019 average, according to LonRes, the lowest since 2013. In Mayfair it was £2,662 per sq ft in 2023, up 13.5 per cent on that pre-pandemic period and at its highest level for a decade. 

“Knightsbridge is not the ‘bullseye’ of prime central London that it used to be,” says Will Watson of agents The Buying Solution, and predicts that prices will drop more this year. “Younger families, including clients we’ve had from Saudi Arabia and Jordan, are looking to buy houses with a wider footprint in the garden squares of Notting Hill, Kensington or Holland Park.”

Foreign buyers who will only spend a handful of weeks a year in their flat tend to prefer a purpose-built modern block with a concierge and hotel-style amenities. Top among only a handful of options is The Knightsbridge Apartments (also known as “199”), a collection of flats built in 2005.

Last week, a four-bedroom flat sold in the block for 11 per cent below the asking price of £12.5mn, according to Simon Barry of the agent Harrods Estates, who adds that they didn’t sell a single house in the area last year. 

A report by Beauchamp Estates and Dataloft property consultants last year found that the number of ultra-wealthy individuals in London choosing to rent homes worth £15mn-plus far exceeded those choosing to buy them. Stamp duty and increased scrutiny into finances (such as beefed-up anti-money laundering regulations) were cited as factors.

In October, a four-bedroom flat in 199 Knightsbridge at £8,000 per week was agreed at £8,500, due to multiple applicants, according to Sarah McIntyre, head of lettings at Harrods Estates. “Most people want to be close to Harrods; schools are rarely discussed in Knightsbridge. They love 199, and also One Hans Crescent [directly behind Harrods] because of the security and the parking spaces, which are rare in Knightsbridge.”

It was after struggling to land any other property she liked during the competitive rental market of 2022 that Pippa Lowe ended up renting a studio apartment in Hans Crescent for “less than £450 a week”. But she is planning to move on. “It’s very convenient but I don’t know my neighbours; people keep themselves to themselves here,” says the lifestyle writer in her twenties.

But there’s a nice sense of community in Cadogan Square, says Audrey Foster. “They don’t allow parties in the [communal] garden but I chat with neighbours,” she says. Her two-bedroom mansion flat has been on sale since June, at £2.45mn, through Savills. “I’ve had some viewings in January,” says Foster who is relocating with her daughter to Ireland for her job in healthcare. 

Rachel Vosper, who rents a two-bedroom house with her daughter near her eponymous candle shop, says her street on the Belgravia borders is also very neighbourly — but the area has changed. “I’ve been here 13 years, and it has lost its buzz since Covid. I blame the working from home culture and the end of tax-free shopping [for non-EU visitors] for the drop in people coming to the pubs and the shops. There is definitely more tumbleweed.” 

Inside Soeur’s Plans to Go From French Girl Favourite to Global Powerhouse

With a new heavyweight backer in Italian firm Style Capital — which helped Zimmermann secure a billion dollar valuation — the French contemporary womenswear brand has ambitions to go global. But it sits in a competitive and hard-to-crack category.

In fashion, there’s no greater compliment than dressing like a French girl.

The industry has long been captivated with French women who personify the effortlessly cool approach to style, such as Coco Chanel in the 1920s, Brigitte Bardot in the 1960s and more modern day influencers like Jeanne Damas, Anne-Laure Mais and Camille Charriere. And since the early 2000s, contemporary French brands — The Kooples, Zadig & Voltaire, Maje, Sandro — have packaged the aesthetic into accessibly-priced sweaters, slip skirts and blazers for the international masses. Last year, French girl favourites Sézane and Rouje continued their stateside expansion, opening stores in Los Angeles and New York.

15-year-old French womenswear start-up Soeur wants to be next.

It’s got the necessary backing. Soeur was sold in September to Style Capital — the Italian investment fund that sold Australian womenswear brand Zimmermann to private equity firm Advent International, at a reported $1.15 billion. With that muscle behind them, Soeur wants to grow outside its home market, beginning with its first UK store in London’s Shoreditch neighbourhood, set to open on Jan. 20. Soeur already has 48 boutiques, mostly around 50 square metres. The London store, which will be over 100 square metres, will be the first in a string of new openings — focussed on Europe for now — aimed at positioning the brand as a real fashion power player.

“The visuals on our website are on par with big luxury brands, but our stores don’t show the strength of the brand,” said Freja Day, Soeur’s chief executive.

Already in 450 doors, including Galeries Lafayette and Harvey Nichols, the brand wants to grow its slate of wholesale partners, particularly in Italy and Spain. All the while, Soeur is keeping an eye on the US, where it has a budding e-commerce business and a few small wholesale accounts, such as the boutique Clic. The brand reached €50 million ($54 million) in sales in 2023, up 40 percent from 2022. It expects to grow around 30 percent in 2024.

But scaling a local brand — even with a strong aesthetic and powerful backer — comes with a number of challenges. Soeur will have to attract shoppers who may not know its name, while continuing to drive excitement among customers in its home base. The contemporary category is notoriously tough to crack. Priced between luxury and fast fashion, it faces competition from both — as well as resale.

Even as inflation eases, it’s a particularly difficult time for brands at the price point, said Marguerite Le Rolland, Euromonitor’s head of apparel and footwear. Plus, blockbuster exits are rare in contemporary: some of the categories’ biggest brands, including Isabel Marant and Ganni, have yet to find buyers.

“The market conditions are toughening up for mid-priced brands,” said Le Rolland. “There is market polarisation, and more consumers are being more careful with their fashion spending in general.”

Creative Liberties

Founded by sisters Domitille and Angélique Brion in 2008, Soeur is known for its vintage-inspired finishes and prints crafted in-house. Prices run from around $60 for T-shirts to $1,500 for shearling coats. Sleek coats, soft vests, tailored trousers, and embroidered and empire-collar blouses fill out the collections.

The dominance of “quiet luxury” has made Soeur’s timeless look trendy, said Roberta Benaglia, CEO of Style Capital. As luxury prices continue to rise, consumers will want other options and wholesale partners are looking for affordable, wearable brands, said Benaglia.

“We weren’t created by a business person who came out of business school and saw a gap in fashion,” said Day. “That’s the DNA of the brand. We have a design process that’s very close to the way that they work in luxury.”

The brand could position itself as a challenger to those at the higher end of the contemporary market, like Toteme, which has seen booming demand for its sophisticated, easy-to-wear silhouettes priced just below labels like Khaite or The Row, said Bengalia. Plus, focussing on that consumer means targeting a smaller slice of the expansive contemporary market, where it’s easy to get lost among undifferentiated brands.

Led by creative director and founder Domatille Brion, Soeur sees design as its biggest strength, said Day. The brand puts creativity first, even if it means injecting unpredictability into the business.

“If next season [Brion] wants to do all linen, she will do all linen … it’s very important that her vision is heard,” said Day. “It’s difficult to be a design-driven brand, but this is the bet that we’re making.”

That said, the product is its best marketing tool, said Day. This year, Soeur will widen its bag and accessory assortment and introduce more upscale fabrics, like washed silks, in apparel. Bags, including its asymmetrical moon-shaped Winona launched in October, are especially effective tools in growing margins and helping the brand recruit younger customers.

A Matter of Scale

To win in the contemporary category, brands need an early edge in positioning. For Isabel Marant, it was strong wholesale distribution; for Sézane it was a close connection with its community through its direct-to-consumer model. Soeur’s retail network is a big advantage, said Benaglia.

“The retail machine is already in place, we just have to help them export their experience to the international market,” said Benaglia.

Beyond its own stores, Soeur will grow through wholesale, which is a cost-effective way to gain footing in a new market, said Le Rolland.

Soeur will also use collaborations to get in front of new customers. In 2023, Soeur debuted a capsule collection aimed at widening its appeal with mass-market windbreaker brand K-Way in September, and worked with luxury loafer maker JM Weston on a shoe to show it could play at the higher-end in October.

Soeur’s capsule collection with American writer and influencer Leandra Cohen in June boosted sales in the region: around 80 percent of Soeur’s sales that month came from the US (overall, the region brought in just 7 percent in 2023). It also helped push Soeur as what Day calls “a cultural brand,” — a label for those in the know. To continue to build on that idea, Soeur will roll out a home goods edit curated by Sophie Pinet, editor-in-chief of Architectural Digest France, this year.

“Brands do well in a saturated market because they are able to tell a story and build a community: they hit the right note with some demographics,” said Le Rolland.

Some bondholders had brought a case against German landlord’s contentious move

German property group Adler’s restructuring suffered a setback on Tuesday after a London court overruled an earlier decision that gave the green light to a plan designed to stave off insolvency.

The Court of Appeal said that a lower court in April “erred in principle” by approving a debt restructuring that extended some of Adler’s bond maturities and allowed it to borrow another €938mn.

The ruling is a victory for a group of bondholders who brought the appeal and opposed the restructuring, which they said unfairly favoured some creditors over others.

A decade of aggressive expansion turned Adler into one of Germany’s largest landlords with a portfolio at one point of 70,000 apartments. But Adler has been fighting for survival since late 2021 when short seller Viceroy Research accused the company of inflating its balance sheet and conducting undisclosed related party transactions.

Adler hired KPMG to conduct a forensic investigation into the allegations. The investigation by the Big Four firm did not uncover evidence of fraud but found widespread governance and compliance shortcomings.

As part of the contentious restructuring, Adler suspended interest payments on €3.2bn of outstanding bonds and raised fresh funds from existing bondholders.

It spared Adler from collapse as much of the new cash was used to repay bonds that were maturing in 2023 and this year, buying the company time to sell down assets in an orderly way.

However, owners of the longest-dated bonds, maturing in 2029, launched an appeal in London, claiming they were put at a disadvantage versus other bondholders. Including bank debt, the group has €6.5bn of financial liabilities.

Despite the ruling, Adler said it would “continue its restructuring path as planned”. The company added in a statement that German law applied to the restructuring and “the terms and conditions of the bonds remain valid regardless of the decision”.

The Court of Appeal’s decision could set a precedent for European companies seeking to carry out debt restructurings through London’s courts, potentially limiting their ability to drive through deals that benefit one group of creditors over another.

The judgment was “hugely important” and restructuring experts would be “poring over” it, said Kate Stephenson, partner in European restructuring at law firm Kirkland & Ellis.

In 2022, Germany’s financial watchdog BaFin concluded that in 2019 Adler had inflated its balance sheet by €3.9bn and its earnings by €543mn. In December, BaFin said that it uncovered additional accounting mistakes in Adler’s 2020 and 2021 results.

Telegram is rolling out a bunch of upgrades as part of its January feature drop including “view-once” video and audio messages, the ability to pause recording while sending a video or an audio message, and new read-time controls.

The app introduced “view-once” photos and videos in one-on-one chat in September 2023. Now, the company is extending this feature to voice and video messages. Users can hit the mic icon to start recording and then pull up to tap on the “view-once” icon to allow the recipient to hear the voice message or look at the video message just once.

Additionally, Telegram is rolling out the ability to pause and resume recording for voice and video messages through the same menu.

Telegram is also adding a way for people to see when the recipient reads your message in one-on-one private chats. You can turn this feature off in the settings.

The company is also introducing some new features for paid users. Now, premium users can hide their read time but still can look at someone else’s read time if they share it publicly.

Plus, paid users can pick who can send them messages first. They can select either “Everyone” or “My Contacts and Premium User.”

Last month, Telegram launched new features for better channel discovery and customization. Later in the month, it introduced improved calls with end-to-end encryption protection that hog less of your phone’s battery. The company also updated its bot platform to let bots react to messages, manage reactions, quotes and links, and send replies to other chats or topics.

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