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Accelerating to T+1: Impact on Institutional Trade Flows

By DTCC Connection Staff | 3 minute read | May 4, 2022

The U.S. Securities and Exchange Commission (SEC) recently proposed rule changes to accelerate the settlement cycle to T+1. If the rule changes are adopted, a T+1 cycle for U.S. equities transactions could be implemented in 2024. To help firms plan and prepare for the move to a T+1 Settlement Cycle, DTCC has launched a series of virtual forums to help clients and the industry understand some of the potential impacts of the transition to a T+1 Settlement Cycle on specific DTCC processes.

Related: Discover More from the Accelerating to T+1 Series

The third event in this 5-part series, held on May 3, focused on the challenges of a shortened settlement cycle on the allocation of institutional trades.

In the first panel, Matt Stauffer, DTCC Managing Director, Head of Institutional Trade Processing; Sean McEntee, DTCC Executive Director, Institutional Trade Processing, and Bob Stewart, DTCC Executive Director, Institutional Trade Processing also discussed the SEC’s focus on institutional trade processing and trade flow regarding shortening the settlement cycle.

New Proposed Rules and Obligations:

  • Broker/Dealers: proposed rules put a contractual obligation on broker/dealers to achieve same-day affirmation process with counterparties.
  • Investment Managers: proposed rules shift the recordkeeping obligation by requiring the broader buy-side community to keep records of allocations, affirmations and confirmations and to document all steps in the process.
  • Central Matching Service Providers: must establish and enforce procedures to facilitate straight-through-processing (STP).

Same-Day Affirmation

According to the panel, there is a high correlation between affirming trades and eliminating friction.

Stauffer noted that with a move to T+1 settlement, post-trade agreement and affirmation needs to happen faster. This is achieved through increased efficiency in the allocation, confirmation, and affirmation processes.

With DTCC CTM’s Match to Instruct (M2i) workflow, trades can be auto-affirmed on trade date and delivered directly to DTC for settlement upon trade match. McEntee touched on the data showing that clients using the M2i workflow today to match, agree and settle their U.S. institutional trading achieve a near 100% affirmation rate by 9 PM on trade date.

Driving Settlement Finality

The authoritative trade record is built in CTM. Trades are enriched automatically with SSIs via ALERT, with matching on Place of Settlement through ALERT Key Auto Select (AKAS).

Stewart explained how our services then facilitate the instruction of that authoritative trade record to the global custodian who pass it to their local custodian or corresponding depository for settlement. If there is an issue or exception, ITP capabilities enable clients to view and manage those statuses to remediate prior to settlement date. Once settlement is confirmed, clients can see immediately their trade has reached settlement finality.

Preparing for T+1

The second panel moderated by David Kirby, DTCC Executive Director, Head of Americas Relationship Management, the panel of speakers included: Carolyn Kostelny, DTCC Managing Director, Consulting Services; Steve Chittenden, Loomis, Sayles & Company Vice President, Head of Investment Operations; Mike Fiscella, Morgan Stanley Managing Director, Shared Services & Banking Operations (SSBO); and David Kabilian, State Street Corporation Managing Director, Global Custody Settlement and Income & Securities Lending.

Below are highlights from of some of the panel’s discussion:

Primary Benefits of T+1 Settlement

  • Better straight-through-processing (STP)
  • Quicker settlement
  • Less margin required
  • Reduction of operational and systemic risk
  • Decrease in costs and resources from reduced number of unsettled positions

Preparing for Impact

  • The move to T+1 further compresses the settlement cycle by 50%, presenting unique challenges; firms operating in a legacy environment and industry standards must act now.
  • Firms should begin to analyze which processes are manual or have multiple touchpoints and what tech stack changes need to be made to enable an automated end-to-end process.
  • Not all jurisdictions are moving to T+1, and global trades will add to the complexity of issues due to a lack of harmonization — making it even more critical for trades to be confirmed and matched on trade date.

Positioning for Success

  • Smaller firms need to take a data-driven approach to align with SEC changes, while larger firms have extra work to understand the readiness of clients.
  • DTCC Institutional Trade Processing (ITP) solutions provide a unique value proposition to fully automate post-trade processing and achieve Same Day Affirmation (SDA), a key enabler of T+1 settlement.
  • DTCC can help firms analyze their own operational performance and the performance of peers & counterparties to facilitate more targeted client conversations and necessary follow-up action.