The T+2 Industry Steering Committee (ISC) has released a suggested timeline for implementing a two-day settlement cycle in the US, with a plan to make the move by the end of Q3 2017.
The T+2 ISC is organised by the Depository Trust and Clearing Corporation (DTCC) and includes members from the across the securities finance industry. These include the Securities Industry and Finance Markets Association and the Investment Company Institute (ICI) which both hold positions as co-chair.
According to a white paper, a move to T+2 in the US could reduce operational, systemic and counterparty risk while also lowering liquidity needs and providing greater efficiency and safety for investors.
It would also align the US with other T+2 settlement markets around the world and enhance the US market structure.
The US is currently on a three-day settlement cycle for equities, corporate and municipal bonds, and unit investment trades. A plan to move to T+2 was recommended after input from more than 600 industry participants representing 12 segments of the market.
The white paper also includes industry-level requirements, considerations, leading practices and other initiatives that organisations will have to asses, including configuring reference data and trade processing systems; matching trades in Real Time Trade Matching by 11.30am on Eastern standard time (EST); affirming institutional equity trades by midday EST on T+1 for straight-through-processing; and aligning physical securities processing with T+2 settlement timeframes.
Market participants will also have to consider how T+2 could affect the resolution process for failed trades. It could also have an impact on securities lending, liquidity and collateral management, multi-listed securities processing, foreign investment or cross-border transactions and secondary insurance for municipal bonds.
Tom Price, co-chair of the T+2 ISC, and managing director of operations, technology and business continuity planning at SIFMA, said: “After rigorous analysis, the T+2 ISC determined that a move to a T+2 settlement cycle is achievable by the end of Q3 2017. The move to T+2 will yield critical and immediate efficiencies that will help mitigate operational risk and keep the U.S. competitive with global markets.”
He added: “The establishment of this timeline is a critically important step toward T+2, and much work remains to be done. Continued communication, socialisation and transparency with the broader industry and regulators will be essential to making T+2 a reality.”
Implementation still depends on support from the regulators to amend the applicable rules quickly, and on successful testing in Q2 and Q3 of 2017. However, SIFMA and ICI have submitted a letter to regulators outlining the specific regulatory changes that would have to be made.
The T+2 ISC will now drive regulatory outreach, communication, planning and industry-wide testing, while DTCC will provide project management support throughout the migration.
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