The following is a summary of the keynote session at the ISITC Virtual Fall Forum from DTCC’s John Abel, Executive Director of Settlement & Asset Servicing Strategy.
Recent market volatility brought on by the Covid19 pandemic in 2020 and the meme stock event earlier this year have crystalized the need to shorten the settlement cycle — an industry topic ever since we moved to T+2 in 2017.
These events created a heightened risk awareness and a subsequent spike in margin requirements at NSCC. As we analyzed these incidents afterwards, we asked and looked for ways to reduce margin requirements in these circumstances — and the answer consistently came back to finding additional efficiencies by shortening the settlement cycle for regular way trades.
Related: The Move Towards T+1 and Its Impact on the Post-Trade Industry
The meme stock issue generated tremendous volatility in early 2021, albeit more concentrated than the volatility experienced in March 2020. However, with the impact to clients, the event generated a different type of attention — significant focus from both regulators and policymakers, with House Financial Services Committee hearings in February, March and May, and a Senate Banking Committee hearing in March. This resulted in testimony from DTCC President & CEO, Michael Bodson, as well as SEC Chairman Gary Gensler and FINRA CEO Robert Cooke. Following the hearings, the U.S. Securities and Exchange Commission hinted at a desire to look at shortening the cycle, prompting concerns of having regulators drive the change instead of being led by the industry.
Our next goal is to deliver a summary of the issues discussed – a T+1 Playbook – as well as proposed solutions and suggested timeline within the next month.
As DTCC has been working on settlement optimization and investigating the feasibility and benefits of a shortened cycle for some time, the timing of the release of our white paper in February 2021, Advancing Together: Leading the Industry to Accelerated Settlement, also coincided with the enhanced industry focus.
Related: Building the Settlement System of the Future
In the paper, we proposed an aggressive transition date of the second half of 2023. However, the release of the paper prompted our partners, ICI and SIFMA, to also begin their own deeper dives and research. This led to an evaluation at the industry level, and resulting in the boards of SIFMA, ICI and DTCC to come together and reinforce our collective support the move to T+1.
For the past several months, participants across the financial services spectrum have met in active working groups to discuss topics relating to shortening of the cycle. As these meetings begin to wrap up this Fall, the next goal is to deliver a summary of the issues discussed – a T+1 Playbook – as well as proposed solutions and suggested timeline, all within the next month.