DTCC Connection

Jun 18, 2015 • DTCC Connection

Industry Announces Proposed Timeline for U.S. T+2 Settlement Cycle

by Michael Battaglini

The Shortened Settlement Cycle Industry Steering Committee (ISC) has released a highly-anticipated white paper “Shortening the Settlement Cycle: The Move to T+2,” outlining the timeline and activities required to move to a two-day settlement cycle (T+2) in the U.S. for equities, corporate and municipal bonds, and unit investment trust (UIT) trades by Q3 2017.

Shortening the settlement cycle will substantially reduce operational and systemic risk across the industry, lower liquidity needs, and limit pro-cyclicality. The shortened settlement cycle will also align the U.S. with other settlement cycles across the globe.

In recent years, the financial services industry increased its focus on reducing risk, achieving greater transparency, and improving efficiency in order to establish a safer market environment. This increased focus has led to a host of regulations and initiatives impacting markets, products, and participants.

In 2014, the ISC was formed to facilitate shortening the U.S. settlement cycle. Comprised of representatives from industry associations and firms from across the financial industry, including The Depository Trust & Clearing Corporation (DTCC), the Securities Industry and Financial Markets Association (SIFMA) and the Investment Company Institute (ICI), the mission of the ISC is to provide guidance, direction, and support.

The proposed implementation timeline was recommended by the ISC after thorough input from more than 600 industry participants across 12 market segments. The move to T+2 in the U.S. is contingent upon obtaining regulators’ support to amend applicable rules in a timely manner, and upon successfully completing industry-wide testing during Q2 and Q3 2017. SIFMA and ICI, co-chairs of the ISC, have recently submitted a letter to regulators outlining specific regulatory changes needed to facilitate the move to T+2.

In addition to the timeline, the white paper includes industry-level requirements, considerations, leading practices and initiatives that organizations will need to review, assess and respond accordingly. These industry-level requirements are grouped into four areas:

TRADE PROCESSING: Requirements for trade processing activities including reference data setup, real time trade matching, straight-through processing, and the delivery of physical securities

ASSET SERVICING: Requirements related to asset servicing functions that include ex-date and cover/protect period computations for corporate actions

DOCUMENTATION: Requirements related to agreements and procedural documentation

REGULATORY CHANGES: Regulatory rule changes that will be necessary for migration to T+2

Next steps are for the ISC to focus on regulatory outreach, communication, planning, and industry-wide testing, while the next steps for individual organizations are to complete specific actions to ensure preparedness for the move to T+2. The ISC will continue to drive the initiative with DTCC providing project management support throughout the T+2 migration.

For more information on the shortened settlement cycle industry initiative, visit:

dtccdotcom