The U.S. Securities and Exchange Commission (SEC) proposed rule changes to shorten the settlement cycle to T+1. If the proposal is adopted, a T+1 cycle for U.S. equities transactions will be implemented by March 31, 2024. Firms should plan and prepare for industry testing by the end of 2022. SIFMA, ICI and DTCC are collaborating on efforts to shorten the securities settlement cycle to T+1 and collaborating on next steps.
To help firms and other key stakeholders prepare for the transition, DTCC hosted a series of virtual industry forums to explore the impact of accelerated settlement and T+1 on specific industry segments and to help firms and other key stakeholders prepare for the transition.
DTCC’s Accelerating to T+1 Series
See below for an overview of each panel. More information on each specific industry segment is available, including written recaps and full video replays.
What You Need to Know About T+1: The event series kicked off with a status update for the industry initiative, with industry experts describing the challenges and opportunities of accelerating to T+1. Key topics included:
- Primary benefits of T+1, which include risk reduction and capital efficiency gains.
- Fundamental behavior changes that must be updated in a condensed time frame.
- Anticipated next steps and milestones over the next two years.
Impact on NSCC-DTC Processing Schedules: Industry experts explained changes identified by DTCC and the T+1 Industry Working Group to critical transaction processing deadlines along with next steps. Upcoming deliverables include:
- Development of T+1 Industry Playbook, scheduled for late summer 2022.
- Functional Guide targeted for year-end 2022 detailing DTCC’s interconnected clearing and settlement services and the impact of a move to T+1.
- Industry testing documents with actual testing scenarios and testing dates.
Impact on Institutional Trade Flows: Industry experts examined the SEC’s focus on institutional trade processing and trade flow regarding shortening the settlement cycle including:
- New proposed rules and obligations for broker/dealers, investment managers and central matching service providers.
- Correlation between affirming trades and eliminating friction.
- Ways firms can prepare for move to T+1 and position themselves for success.
Impact on Corporate Actions Processing: Industry experts looked at the implications of a T+1 settlement cycle on corporate actions including:
- Considerations around the complexities of the Notice of Guaranteed Delivery.
- Implications of, and recommendations for, T+1 settlement on Continuous Net Settlement.
- Overall pain points for corporate actions processing as it relates to an accelerated settlement cycle.
Impact on SEC Lending, Prime Brokers & ETFs and Broader Industry Readiness: Industry experts have explained the impact moving to T+1 will have on securities lending, prime brokers and ETFs, and the impact of global interconnectedness and overall industry readiness for the move to T+1. Key topics included:
- Prime Brokers: Disaffirmation Affects and Optional Service
- Securities Lending: Avoiding Issues and SFT Clearing
- ETF Challenges: Batch Cycle Processing and Global Misalignment
Functional Review: Industry experts provided an update on milestones and updates on the T+1 initiative to this point. Highlights included:
- The importance for firms to be assessing their overall readiness.
- Upstream and downstream effects on the transaction lifecycle with the removal of 24 hours from the settlement cycle.
- Dates to be aware of regarding new T+1 documents, testing sessions and proposed US T+1 implementation.
Testing & Integration: Industry experts focused this session on how firms should be preparing for T+1 testing. Key topics included:
- The DTCC T+1 Test Approach functional paper which provides a high-level testing structure.
- Insight on DTCC plans to open its DTCC PSE U testing region in 2023.
- Interactive testing sessions utilizing the DTCC, SIFMA, and ICI T+1 Industry Working groups.
Global Buy-Side Perspectives: Industry experts across APAC, EMEA and the Americas gathered to discuss the impact of T+1 on the buy-side, including:
- Time zone challenges, particularly for global firms, with the removal of 24 hours from the trade cycle.
- Adapting to changes, both operational and behavioral, through increased automation in the allocation, confirmation, and affirmation processes.
- Utilizing the comprehensive T+1 Detailed Testing Framework firms to prepare for testing T+1 changes with DTCC and other industry infrastructures.
Industry Readiness: Industry experts discussed overall global industry preparedness. Key topics included:
- New research conducted from the ValueExchange which indicates varying levels of preparedness across firm types and geographic locations.
- Priority focus for firms should include emphasizing STP, buy-side recordkeeping, managing global impacts and adjusting to timing changes.
- Upcoming nine-month testing schedule, beginning in August, which has 21 bi-weekly cycles with various scenarios.