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May 22, 2012 • Press Releases

Securities Industry Examines Faster Payment for Stock and Bond Trades

DTCC, with the Guidance of SIFMA, Oversees Cost-Benefit Analysis for Shortening the Time Period between Trade Execution and Settlement Date

New York, May 22, 2011 – The Depository Trust & Clearing Corporation (DTCC), with the guidance of the Securities Industry and Financial Markets Association (SIFMA), has awarded a research contract to The Boston Consulting Group (BCG) to undertake a business case study of the impacts of shortening the trade settlement cycle in the U.S. financial markets for equities, corporate and municipal bonds and unit investment trust (UIT) trades.

Currently, the securities industry completes settlement for trades in equities and certain debt securities on the third day after a trade is executed by sending payment for the trade to the seller and the securities to the buyer. In industry parlance, this three-day period to complete the exchange is known as T+3. The business case analysis will examine the costs and benefits of shortening the trade settlement cycle for these instruments in the U.S. financial markets from T+3 to T+2 or T+1. The study will also examine the conditions necessary to settle trades on the trade date itself (T+0).

BCG will work with SIFMA, who will leverage their various industry committees to provide access to a variety of market participants and subject matter experts. The firm will interview or survey a cross-section of specialists, including technology and operations staff, at some 200 firms throughout the securities industry. The 18-week study is expected to be completed mid-September, 2012 and the research will enable the industry to better identify the processes that it would need to change in order to accelerate settlement.

Current T+3 Trade Settlement Cycle

In the U.S. financial markets, all equity, corporate and municipal bond and UIT trades are settled on T+3. The value of these trades averaged nearly $450 billion per day in 2011. DTCC’s subsidiary the National Securities Clearing Corporation (NSCC) functions as the central counterparty to both sides of these securities transactions in the U.S. market and collects collateral as margin from its participants to safeguard against the risk of default between the trade date and settlement date of a transaction.

“It’s clear that certain risks and costs are prolonged by the time between the execution of a trade and its related settlement,” said Michael Bodson, DTCC’s President and CEO-elect. “Compressing that time frame should reduce those costs and risks. To determine how the industry might be able to shorten the time frame, shrink the related costs and risks and determine other benefits and impacts is the purpose of this business case study.”

NSCC managed an average gross daily participant exposure of roughly $900 billion during 2011. Given the four‐day settlement window from trade date through settlement date, and NSCC’s loss‐mutualization model, this represents an average $3.6 trillion in gross market exposure across NSCC participants (see “Proposal to Launch a New Cost-Benefit Analysis on Shortening the Settlement Cycle,” a White Paper, dated December 2011, available at december-2011-white-papers. “This exposure could be reduced by approximately $900 billion, or 25% for each day the settlement cycle is reduced,” the White Paper noted.

Payment Cycle was Longer

For many years, the U.S. equity trade settlement cycle allowed five days after the trade date, or T+5, to complete the trade. In 1995, as a result of automation and technological improvements, the industry reduced the settlement cycle to T+3. Over a decade ago, SIFMA began discussions with its members, including banks and brokerage houses, on shortening the settlement cycle further. In 2004, the SEC issued a concept release requesting the industry to undertake a new study on the benefits and costs of shortening the settlement cycle beyond T+3, in an effort to reduce risk, noting that “time equals risk.”

Interest in reducing the settlement cycle picked up again in February 2011 when a group coordinated by the European Commission reported on the need to harmonize settlement cycles in Europe. Germany currently operates on a T+2 cycle, while the United Kingdom and most other European markets settle three days after a trade. The time allotted for settlement varies in Asian and Latin American markets as well.

DTCC is not predisposed to a specific outcome of this study and will collaborate closely with both SIFMA and BCG to ensure that industry concerns and ideas are recognized and addressed. The results of this study will be used to help the industry determine whether it should accelerate settlement or stay at T+3.

About DTCC

Through operating facilities and data centers around the world, DTCC and its subsidiary companies automate, centralize and standardize the post-trade processing of financial transactions for thousands of institutions worldwide. With more than 40 years of experience, DTCC is the premier post-trade infrastructure for the global financial markets, simplifying the complexities of clearance, settlement, asset servicing, global data management and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, derivatives, money market instruments, syndicated loans, mutual funds, alternative investment products, and insurance transactions. In 2011, DTCC processed securities transactions valued at approximately US$1.7 quadrillion. Its depository provides custody and asset servicing for securities issues from 122 countries and territories valued at US$39.5 trillion. DTCC’s global OTC derivatives trade repositories hold records on more than US$500 trillion in gross notional value on transactions across multiple asset classes globally. For more information, visit

Jim Conmy


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Bari Trontz