The Securities Industry and Financial Markets Association (SIFMA), the Investment Company Institute (ICI), and The Depository Trust & Clearing Corporation (DTCC) recently published The T+1 Securities Settlement Industry Implementation Playbook.
The detailed Playbook identifies implementation activities, timelines, dependencies, and risk impacts that market participants should consider to help prepare for the transition a T+1 settlement cycle.
Related: Exploring the Impact of Accelerating Settlement
SIFMA, ICI and DTCC are leading the US T+1 industry initiative, forming both an Industry Steering Committee (ISC) that provides governance and consensus building as well as Industry Working Groups (IWG) to understand the impact and make recommendations on implementation activities. The ISC worked with the IWG to determine the scope, requirements, and changes for the move to T+1 settlement, as published in the December 2021 Accelerating the U.S. Securities Settlement Cycle to T+1 report.
Framework for T+1
This Playbook is intended to serve as a framework and guide; while some sections may not pertain to each organization, they should provide users with a resource to assist with its T+1 implementation plans. These recommendations are dependent upon final rule language, decisions, and outcomes based on SEC approval. This Playbook will be updated to reflect any changes in the final rule.
The Playbook consists of 14 different sections, which can be summarized in the following three areas:
- The first two sections provide overviews of the previous move to a T+2 settlement cycle and the approach for the latest Playbook.
- The next eight sections explore specific areas of the trade lifecycle including Trade Processing, Asset Servicing, Documentation, Securities Lending, Prime Brokerage, and Funding and Liquidity Considerations.
- The remaining four sections outline matters related to Regulatory Changes, Global Impacts, Primary Offerings, Buy-Side Considerations, Industry Testing and Migration Plans, as well as the associated resources needed for market participants to prepare for the transition to T+1.
The Playbook captures and organizes the various considerations, requirements, and activities for a T+1 implementation, including:
- A T+1 industry timeline with interim milestones and dependencies designed to guide industry action, market participant implementation, testing, and migration
- A market participant timeline with milestones and dependencies designed to guide planning, development, testing, and migration to T+1 for individual organizations
- Impact assessment and a suggested implementation approach to make the required changes to transition to T+1
- A high-level testing, migration, and industry readiness assessment plan to transition to T+1
Stresses on the U.S. markets, exacerbated by the pandemic and into early 2022, refocused attention on the settlement cycle for securities, including the risks associated in the present-day T+2 settlement cycle. The primary benefits of moving to a T+1 settlement cycle include:
- The reduction of risk, particularly during periods of high volume and volatility, liquidity requirements and long-term costs.
- The increase in capital and operational efficiencies, through modernizing infrastructure and standardizing industry processes.
At the writing of the Playbook, the U.S. Securities and Exchange Commission (SEC) rule proposal and the actual implementation date in 2024 is still pending. However, with industry activity around the move to T+1 quickly ramping up, firms should read the Playbook and begin to develop their own comprehensive internal implementation plans.
Further documents will be issued from DTCC in the coming days, including a document on T+1 Functional Changes and a T+1 High-Level Test Approach. A more detailed document with specific test scripts and test scenarios will developed by the Industry Testing Sub-Working Group and is anticipated to be distributed by year-end 2022.