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Client Feedback Guides DTCCs Night Cycle Re-Engineering Effortstemplate

By John Abel | October 18, 2018

Turning User Feedback Into Improved Market Insights
John Abel, Executive Director, Settlement & Asset Services

When DTCC released its January 2018 concept paper, Modernizing the U.S. Equity Post-Trade Infrastructure, we outlined two ambitious proposals, Settlement Optimization and Accelerated Settlement, which would enable us to improve workflows, optimize capital and reduce risk, further reducing processing inefficiencies through automation.

A major component of Settlement Optimization is night cycle re-engineering, which is designed to maximize transaction throughput by optimizing member-available position and controlling the order in which transactions are processed. There are two distinct parts to night cycle re-engineering; while they are separate efforts, they are interdependent. The first development effort would be creating a more dynamic and intelligent processing environment, with new algorithms that actively look to process as many transactions as possible — and as early in the processing cycle as possible. The second aspect is moving the start of DTC’s night cycle to 3:00 a.m. on S (settlement date).

Over the past several months we’ve met regularly with the Settlement Optimization working group, comprised of more than 100 members from over 50 firms, representing clients and organizations from across the industry. These meetings have been very productive to both define the scope of the effort as well as gather vital feedback on the various components. While the concepts of Settlement Optimization have been enthusiastically embraced, the consensus from the working group was that aggressively moving the start of the night cycle from 8:30 p.m. on S-1 (day prior to settlement) to 3:00 a.m. on S would be quite difficult for some firms to adjust to at this time, given current processes.

In light of this client feedback, DTC has decided, for now, to keep the cut off time for the night cycle as close as possible to where it currently is, at 8:30 p.m. on S-1 and applying the new optimization algorithm to the transactions available for processing at that time. This change will enable our clients to receive the benefits of reduced risk from our proposed algorithm for settlement, without the need to adjust their processing schedules.

Our initial proposal to move the cut off time to 3:00 a.m. was to increase the volume of transactions in the settlement optimization batch. Through testing, the settlement processing algorithm showed a correlation between the volume of transactions included and the effectiveness of the settlement optimization batch.  The hope was that by applying the new algorithm and moving the cut off time back, we would increase the rate of night cycle settlement from 50% up to 90% — or perhaps greater. By keeping the start of the night cycle the same, we unfortunately do not expect to see as much of an increase in night cycle settlement rates.  However, by utilizing the new processing algorithm on the current night cycle data sets we expect to see night cycle settlement rates of approximately 80%.

The goal of settlement optimization is to improve clearing and settlement processing efficiency, promote settlement finality, reduce equity clearing margin requirements, and provide participants with liquidity enhancements — while still preserving the resiliency of the current infrastructure. We feel confident that this adjustment to our initial night cycle re-engineering proposal is consistent with the overall settlement optimization goal and will still provide great improvements to settlement efficiency.

As we gear up for the last quarter of the year, DTCC will continue meeting with clients to make sure all are aware of our overall strategy, and to gain feedback on how we implement it. 2019 will be a big year for the industry as we continue make progress on the settlement optimization initiative.

To stay up to date on DTCC’s settlement optimization efforts, please visit