Our Perspective on Advancing Innovation:

25 Years of Advancing Settlement

DTCC has worked with the industry to advance financial markets, and these parallel projects to accelerate settlement and drive fintech initiatives are converging. It is an evolving story of strategy, rapid innovation, and industry collaboration.

Major Milestones in the ‘90s

NSCC and DTC lead the industry moving the U.S. equity settlement cycle from T+5 (trade date plus five days) to T+3 in 1995.

The next year DTC and NSCC reach a major industry milestone, moving all securities transactions to same day funds settlement (SDFS), another step forward for the industry.

In 1999 DTCC is created to meet the industry’s needs for greater operational efficiency, lower costs and more robust risk management.

Showcasing Strength & Resiliency

Amid devastating tragedy on 9/11, DTCC provides critical services to maintain liquidity and confidence in the U.S. markets, remaining fully operational despite a lockdown across Lower Manhattan. DTCC settles $1.8 trillion by the end of the week, ensuring the markets could reopen on September 17.

In 2004 DTCC reaches a historic milestone, settling more than $1 quadrillion ($10¹⁵) in securities transactions for the first time.

The bankruptcy of Lehman Brothers in September 2008, the largest liquidation in U.S. financial history, was another defining moment. DTCC played a critical role in protecting the industry and ensuring stability, resolving $530 billion in market exposure.

Reducing Risk & Exploring DLT

DTCC finalizes settlement matching in 2015, enhancing intraday settlement finality and substantially reducing systemic credit and liquidity risk. The initiative removed approximately $525 billion of risk from the DTC settlement system.

A year later, DTCC’s first white paper on blockchain, Embracing Disruption, identifies several potential projects to improve the post-trade landscape.

Further advancing new technology, DTCC members joined the Hyperledger Project, a collaborative effort to establish an open, distributed ledger platform with a variety of use cases across multiple industries.

Groundbreaking Events: T+2 and DLT Performance

In collaboration with the industry, DTCC completed the transition to T+2 in September 2017, further accelerating settlement by an entire day. This initiative reduced risk, increased financial stability, improved both safety and efficiency for market participants while also providing global settlement harmonization.

Later that year, DTCC launched a DLT Benchmark Study with U.S. equities post-trade processing as the target use-case for performance and scalability of distributed ledger technology (DLT). The results found that DLT is capable of supporting average daily trading volumes in the US equity market of more than 100 million trades, with the potential to perform at levels necessary to process an entire trading day’s volume at peak rates.

Laying the Foundation for the Future

DTCC releases Modernizing the U.S. Equity Post-Trade Infrastructure, a 2018 white paper proposing settlement optimization and accelerated settlement models. These proposals aimed to significantly reduce capital requirements, systemic risk and operational costs while still preserving the resiliency of the current infrastructure.

This paper laid the groundwork for Project Ion.

Guiding & Protecting DLT Landscape

DTCC’s white paper, Guiding Principles for the Post-Trade Processing of Tokenized Securities, outlines guiding principles for the post-trade processing of tokenized securities. This 2019 paper also identifies post-trade responsibilities to establish confidence in security token platforms and protect market stability.

DTCC also developed the Governing DLT Networks paper to manage the risks and consequences of a distributed ledger landscape. The paper advocates a robust model to support the development and implementation of DLT solutions and introduces a governance model for operating and maintaining a private, permissioned DLT platform.

Reengineering Settlement & Refreshed DLT Approach

The advanced settlement processing algorithm was completed in early 2020, enabling DTCC to further optimize settlement by maximizing night cycle settlement rates without changes to the existing night cycle timeframes.

DTCC’s Security of DLT Networks paper illustrates the need for a refreshed approach to security regarding DLT implementation. The paper recommends establishing a comprehensive industrywide DLT Security Framework to review existing security guidelines, gaps in the approach to DLT security, and the need for increased standards.

Project Ion: A DLT Approach to Accelerated Settlement

The developments DTCC has made in accelerating settlement and enabling DLT have converged into Project Ion. Project Ion will evaluate the benefits of accelerated settlement for the U.S. equities market to determine if digitization of assets can pave a path to modernizing the capital markets infrastructure.

As part of this effort, DTCC is proposing a vision of an alternative digital settlement service featuring real-time netting with dynamic logic and an enhanced settlement engine offering further margin reduction.

DTCC is excited by the potential to offer the benefits of accelerated settlement, while still retaining the efficiencies and advantages of central netting and preventing fragmentation of the clearing and settlement ecosystem.