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Early Transaction Submission Testing Yields Promising Results

By Crystal Bueno | June 8, 2018

Turning User Feedback Into Improved Market Insights

DTCC is exploring several ways to optimize settlement and further shorten the trade settlement cycle beyond T+2, reducing risk and costs for clients. The first enhancement – which will allow clients to submit transactions for processing earlier than the current input start time of 3AM – is available right now for client testing in DTCC’s Participant Services Environment (PSE) region. DTCC will begin a phased-in implementation of the transaction input cutoff changes starting on June 1, 2018, with a planned finish date in production of June 29, 2018.

Internal Systems Changes

During a system analysis earlier this year, DTCC identified more than 50 internal triggers and legacy “cut offs” in the settlement process that prevent members from submitting certain transactions to The Depository Trust Company (DTC) before 3AM. DTC has since made the required systems changes in the test region to allow client input as early as 1:15AM. Clients will not need to make any changes to adhere to DTC’s system changes.

With that impediment out of the way, DTC has also been evaluating actual transaction input behaviors, creating reports that analyze when transactions and approvals are currently submitted to DTC.

These individualized reports, which are available to interested firms through the relationship management team or from [email protected], can help determine the opportunity for earlier transaction input and the corresponding benefits of earlier settlement finality, improved processing efficiency and, eventually, earlier funds settlement.

Submitting Transactions before 3AM

There are more than 1 million transactions that are eligible for DTC night cycle processing on a given day. Currently, the settlement rates for night cycle transactions are approximately 45%, which means the other 55% will not be processed until later on settlement day and often require manual intervention to get them to settle.

“In our testing, we discovered that the more transactions we pushed through the new processing algorithm and into our settlement engine, the better the results, achieving a settlement rate of almost 90%,” said John Abel, DTCC Executive Director, Settlement and Asset Servicing Strategy, Product Management Group. “It is completely optional for members to submit their transactions to DTC before 3AM, but we can already see the potential for benefits in the aggregate – especially processing efficiency and reduced operational risk.”

“Based on support and feedback from the Settlement Optimization Working Group, we are taking a phased approach to implementation,” said Robert Cavallo, Director, DTCC Settlement Product Management. “As we begin to support earlier transaction input and approval in our testing environment, we are excited to see some very successful results for our members.”

How Clients Can Stay Informed

DTCC has established a dedicated settlement optimization website. The site will be used to house information and documentation related to the effort, and as a way to proactively share implementation and testing details as it becomes available.