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The Road to T+0 and the Future of Settlement

By Michele Hillery, DTCC General Manager of Equity Clearing and DTC Settlement Service | November 9, 2021

Speaking at SIBOS 2021 in October, DTCC’s Michele Hillery joined the “The Road to T+0” panel along with Global Custodian Managing Editor Jonathan Watkins, CME Group’s Managing Director Suzanne Sprague, and BBVA’s Head of Global Securities Services Alexis Thompson to discuss the global trend towards shorter securities settlement cycles.

As we move closer to the proposed T+1 shift, it’s important to note how our industry has evolved in less than two years. With a shift toward virtual work environments from both the global pandemic and the rise of modern retail investing, our reliance on – and the evolution of – technology is steadily increasing.

Related: T+1 and The Importance of Accelerating Settlement

Challenges to a Shortened Cycle

When looking at legacy technology, it’s important to note that DTC and NSCC process many trades and obligations today with shortened settlement cycles. This is something that the industry does today. However, there are industrywide changes that need to be made in order to make T+1 the regular way market settlement. The scope of changes needed are different across the industry. Many firms are already well-prepared for a T+1 transition, having scaled up during the shift to T+2 in 2017; others will need to rethink some of their systems and key processes.

Moving to T+1 presents an opportunity for all firms to review their current processing environment and decide if now is the time to scale up automation, given the reduction in operational risk through an investment in technology. Likewise, DTCC also views the move to a shortened cycle as an opportunity to tie into our strategic roadmap for modernization. There will be some necessary developments, especially we see opportunities for the introduction of automation and standardization in, for example, the allocation process.

The Future of Settlement

We believe now is the right time for the change: while the industry is pushing hard towards achieving T+1, we shouldn’t stop there.

It is notable that DTCC currently supports an even shorter cycle that T+2, and we already settle numerous equities trades every day on a T+0, or same-day, settlement. However, shortening the settlement cycle also presents an opportunity to further reconfigure and optimize the technology. For example, through Project Ion, DTCC has been advancing the possibilities of a netted T+0 solution, with an effective use case for settlement using distributed ledger technology (DLT).

Whereas real-time gross settlement requires both the securities and cash be available at the time of execution and is a much larger challenge, netted T+0 can – and should – be achieved to preserve the benefits of netting and efficiency of capital. 

Related: Building the Settlement System of the Future White Paper

The Next Step for the Industry

Built as a proof of concept for a DLT use case, Project Ion presents tremendous potential to bring efficiencies and streamline reconciliation. We released a fully-fledged prototype in early 2021, and client response has been overwhelmingly positive.

The next step is the Project Ion minimal viable product (MVP) model, to be piloted with live, production data in 2022. The production journey will begin with the Project Ion MVP, which will allow clients to integrate into the ledger for DTC Deliver Order transactions processed on the classic DTC system. Classic DTC settlement will remain the authoritative record. While still limited, the MVP will be a great opportunity to test the technology.

We believe this will be a huge leap forward for the technology of the future, and DTCC is looking to engage with the industry on this exciting next step.

Michele Hillery
Michele Hillery DTCC General Manager of Equity Clearing and DTC Settlement Service

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