DTCC Connection

Aug 04, 2016 • DTCC Connection

DTCC Offers the Industry Speedier Processing for Accelerated Settlement

By Crystal Bueno

Murray Pozmanter, Managing Director, DTCC Clearing and Settlement
Murray Pozmanter, DTCC Managing Director and Head of Clearing Agency Services

For the past several years, DTCC has provided steady leadership and direction for the industry-wide T+2 project that will move the U.S. financial industry from the “regular-way” trade date plus 3 days settlement cycle (T+3) to trade date plus 2 days (T+2) for equities, corporate and muni bonds, and unit investment trust (UIT) trades.

But DTCC has long-supported the processing of what today are still considered non “regular-way” trades. That includes accelerated settlement at T+2 and even faster than T+2, which DTCC’s systems can already accommodate.

Podcast: Hear More about Accelerated Settlement (T+0 and T+1)

“DTCC’s mandate has always been to reduce the cost and complexity of the post-trade process,” said Murray Pozmanter, DTCC Managing Director and Head of Clearing Agency Services. “It might not be common knowledge since it happens so efficiently every day behind the scenes, but same-day settlement is actually not a technological problem to be solved. DTCC’s equity and fixed settlement process occurs in real time throughout the day.”

For clients, DTCC’s Universal Trade Capture (UTC) system provides the flexibility to submit their trades for clearance and settlement on a regular-way (T+3), shortened settlement (T+0, T+1, T+2) and extended settlement basis, across all U.S. markets.

The process for same-day settlement (SDS) or next-day settlement (SD+1) depends on market practice, such as the time the trades are received – before or after 11:30 a.m. – and if the trades are eligible for NSCC’s Continuous Net Settlement (CNS).

When it Comes to Real-Time, UTC is the Key

In 2011, DTCC created “Universal Trade Capture” (UTC), a system improvement that combined the four legacy NSCC trade capture systems (Correspondent Clearing, Over-the-Counter, New York Stock Exchange, and Regional Interface Operation) into a single validation and reporting engine.

“Before UTC, we had several separate systems that each interfaced with the various marketplaces, all of which had different record formats and ran in batch versus real-time,” said Tom Sakaris, managing director, DTCC Clearing. “With UTC, we standardized the interfaces across all markets to communicate trade details with one format. We also moved from batch to real-time, so we take in real-time messages and report real-time messages back out.”

UTC has greatly reduced the cost and complexity of the post-trade process. It has also increased NSCC throughput and reduced overall storage costs, which in turn increases efficiencies and accommodates future growth and capacity in trading volume.

Currently, DTCC is leading discussions with the industry to further enhance its ability to settle trades on a same-day basis; in particular, to enable trades received after 11:30 a.m.to receive significant processing benefits. To further support clients’ abilities to reconcile trades on a more simplistic, real-time basis, DTCC is considering the following processing enhancements to its settlement systems:

1. Changing the NSCC Same-Day-Settlement (SDS) netting process to either real-time netting prior to 11:30 a.m. or more frequent batches (e.g. every 15 minutes);

2. Extending the cut-off time for NSCC Netting from 11:30 a.m. to later in the day;

3. Creating a direct feed of settlement instructions following the cut-off from Universal Trade Capture (UTC) to The Depository Trust Company (DTC) and to Obligation Warehouse (OW);

4. Allowing affirmed trades sent directly from Omgeo to DTC’s Inventory Management System (IMS), to be adjusted to enable same-day settlement trades and for trades matched after noon on settlement date to be processed similarly to the late affirmed trades currently sent to IMS for settlement.

“The benefits to market participants for managing transactions through DTCC are many, but especially include the guarantee of applicable trades through the central counterparty (CCP),” said Tom Sakaris, Managing Director, DTCC Clearing. “This offers anonymity, enhanced market liquidity, risk and capital benefits from netting down transactions, and netting of trade fails.” For our podcast discussing accelerated settlement, as well as additional information on how Same-Day Settlement (T+0) and accelerated settlement (T+1) currently work through DTC, NSCC and Omgeo, click here.

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