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Settlement From Optimization to Modernization

By John Abel, DTCC Executive Director, Settlement Services | February 10, 2020

For more than 45 years, DTCC has been the backbone of the U.S. financial industry’s settlement system. By continually evolving both our technology and our core processes, DTCC’s settlement engine is among the most cost-effective and efficient systems in the world. This January, we implemented some important changes to the settlement night cycle, further increasing our processing efficiencies with little to no development work for our clients.

T+2 and Optimization

Just over two years ago, the industry collectively achieved a huge milestone – moving to a shortened settlement date of T+2. By removing an entire day from the settlement cycle, the average daily capital requirements for clearing trades through DTCC's National Securities Clearing Corporation was reduced by approximately 25 percent, saving the industry $1.36 billion in NSCC margin requirements. This multi-year effort marked the most significant change to the U.S. market’s settlement cycle in more than 20 years.

On the heels of this accomplishment, we published a white paper titled “Modernizing the U.S. Equity Markets Post-Trade Infrastructure,” outlining some ideas to realize additional operational and capital efficiencies, accelerating the settlement cycle – potentially to T+ ½ – and further optimizing the settlement process. The big take-away from the white paper was the beginning of our vision for a cohesive, optimized settlement model that can be both more efficient and less costly to clients.

One of the biggest components of the Settlement Optimization initiative was Night Cycle Reengineering, designed to maximize transaction throughput by optimizing a client’s available positions and controlling the order in which transactions are attempted for settlement – all within existing night cycle timeframes. The recent implementation of Night Cycle Reengineering improved processing efficiency, reduced operational risk and improved intraday settlement finality. Additionally, clients should see substantial savings in transaction costs.

Modernizing Settlement for the Future

As we continued to run and test various components of settlement optimization, we learned there may be even better ways to build a settlement engine – one that would be less complex, more powerful and offer several enhancements designed to continue driving processing and cost efficiencies. To that end, DTCC has decided to initiate a “settlement modernization” program that leverages many settlement optimization concepts, coupled with resiliency and new technology.

As we strategize what a settlement system of the 21st century could – and should – look like, we’ll be meeting with key stakeholders throughout the industry to come up with a more complete vision for Settlement Modernization. We’re excited at the prospect of sharing a fully modernized settlement model that will embrace newer technology, further create resiliency and streamline processes to reduce risk and costs, all while improving efficiencies.

We look forward to working with our clients to find the best way to reduce risk and increase savings. In 2020 – and beyond – we’ll be looking to optimize technology, and better understand how a reimagined, modernized system can dramatically impact the way we process trades.

A Brief History of DTCC Settlement

DTCC has achieved a number of significant milestones over the past 25 years to reduce risk, improve operational efficiencies and increase market liquidity for the U.S. settlement system. Learn more about DTCC’s key role in the U.S. financial industry’s settlement system with the slideshow below:

John Abel Executive Director, Product Management, Equity Clearance and Settlement Services

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