The Depository Trust & Clearing Corporation (DTCC) along with the Securities Industry and Financial Markets Association (SIFMA), and the Investment Company Institute (ICI) have outlined steps to accelerate the move of the US securities settlement cycle to T+1.
The organisations believe the shift will reduce systemic and operational risks for investors and market participants.
The groups began discussing shortening the settlement cycle with their members last year. Their aim is to complete their analysis by the end of the third quarter and then develop a definitive timeframe for the move.
DTCC which launched a two-year industry roadmap in February, noted that a move to T+1 would not require large operational or technical changes by market participants.
The key issues the organisations identified ranged from mitigating risks to investors and industry participants to analysing and improving current business and operational processes as well as minimising the disruption of important industry services.
They also aim to ensure new risks are not introduced and comprehensive cost-benefit analysis can be conducted.
In addition, multiple regulatory bodies, including the Securities and Exchange Commission (SEC), will need to be engaged.
SIFMA, ICI and DTCC are also set to explore the role that emerging technologies could play.
However, a move beyond T+1 has had its critics. Industry expert and consultant Tony Freeman has previously emphasised that the idea of T+0 settlement is a non-starter and could have
“huge side effects and remove all of the benefits of netting which are significant”.
Michael Bodson, DTCC president and CEO, comments, “Recent volumes and volatility demonstrate that the time to move to a shorter settlement cycle is now. While we are committed to fast-tracking this work and can support T+1 with existing DTCC technology today, we realise that this is a complex undertaking that will require close collaboration across the industry.”
He says, “We look forward to working closely with our colleagues, members, regulators and key stakeholders to achieve T+1 and ultimately delivering reduced risk and margin relief for the benefit of market participants and underlying investors.”
According to SIFMA president and CEO Kenneth Bentsen, Jr, a shorter settlement timeframe can benefit investors and market participants by reducing credit, market and liquidity risks and promoting financial stability.
“Our plan is to fully address the business and operational impacts of the change first, to ensure a smooth transition and avoid any unnecessary market risk,” he says.
“ICI and its members will play an active role in designing the roadmap for shortening the settlement time. Regulated funds occupy a prominent place at the intersection of trading and settlement as they are the primary source for the daily trading transactions that brokers process,” adds ICI President and and CEO Eric Pan.