As we continue to advance efforts to accelerate the US settlement cycle, I was pleased to read one of today’s Financial Times’ Lex opinion pieces, which expressed support for a move to T+1. For the past several months, we’ve been working closely with SIFMA and ICI on this initiative, and we’re making good progress on developing a blueprint for such a move. The good news is that we believe T+1 is achievable with the right amount of coordination, socialization, planning and testing.
A T+1 settlement cycle will significantly increase market efficiency and mitigate risk, particularly during times of extreme volatility, and would free liquidity—cash or shares—held to ensure the completion of trades. As the FT editorial notes, “the current system works well” and is the right approach for today’s marketplace.
The FT’s Lex opinion piece also highlights the significant challenges that real-time settlement would pose to the industry, including eliminating the benefits of netting for settling trades, the fact that every transaction would have to be funded instantly and individually and additional complexities for foreign investors, options, ETFs and futures. We outlined many of these same concerns earlier this week in a letter to the Securities & Exchange Commission (SEC) updating them on feedback we’ve received during workshops featuring buy-side, sell-side, custodians, vendors and clearinghouses.
While accelerating settlement beyond T+1 is more aspirational at this time, we remain committed to exploring way to further reduce settlement times. In fact, we already have the operational capability to clear and settle transactions same-day on T+0 with existing technology. More than one million same-day transactions are introduced and processed at our depository every day.
In addition, we optimized our settlement system last year by re-engineering night-cycle processing, which has improved intraday settlement finality and delivered substantial savings through lower transaction costs. We did this using existing technology and without the need for our clients to undertake significant development work. It’s been a major win for the industry.
We’re also continuing to explore how technology may enable us to accelerate the settlement cycle even further while ensuring the same – or higher – levels of safety, stability and risk management. I encourage you to read about Project Ion – our proof of concept of an alternative digital settlement service that leverages distributed ledger technology (DLT) to enable T+0 settlement while retaining the advantages of central netting and preventing fragmentation of the clearing and settlement ecosystem.
At the heart of all this work is our commitment to innovation. The combination of creative thinking and new technologies open the door to reimagining post-trade processing and delivering greater value to the industry and the investing community.
This article originally appeared on LinkedIn Pulse