DTCC has recommended that the US trade settlement cycle for equities, municipal and corporate bonds and unit investment trusts be shortened from T+3 to T+2.
In a whitepaper, the Depository Trust & Clearing Corporation said that it would work with the industry to establish an implementation timeline. Once achieved, DTCC recommends a pause and further assessment of industry readiness and appetite for a future move to T+1.
Thirteen years ago, the industry was examining a move to a T+1 settlement cycle, but the initiative was abandoned as a result of competing priorities. There have been significant improvements since that time that make this a timely opportunity to shorten the settlement cycle, said DTCC.
After considerable industry input and discussion, along with in-depth due diligence that included risk and cost-benefit studies, DTCC concluded that a move to T+2 would reduce industry risk. DTCC continues to work with market participants, industry organisations and regulators to refine and move this initiative forward.
Shortening the settlement cycle mitigates operational and systemic risk by reducing counterparty exposure, procyclicality and liquidity risk from both a clearing agency and member perspective. It also frees up capital for DTCC member broker-dealers.
DTCC’s recommendation is based, in part, on the following feedback from due diligence conducted over the last 18 months that includes results from risk studies that measure exposure and the National Securities Clearing Corporation’s liquidity need; outcomes of a cost-benefit analysis performed by the Boston Consulting Group; input from industry associations and one-on-one interviews with more than 50 firms across the industry, which helped define behavioral and system changes required to shorten the settlement cycle.
In the first half of 2014, expressions of support for a move to T+2, in a timeframe acceptable to the industry, were received from various industry groups, including the Investment Company Institute (ICI), the Association of Global Custodians (AGC), the Association of Institutional INVESTORS (AII) and the Securities Industry and Financial Markets Association (SIFMA).
