Shortening the Settlement Cycle: The Move to T+2

 The U.S. financial services industry is working to reduce operational and systemic risk by implementing the T+2 settlement cycle.

The Shortened Settlement Cycle Industry Steering Committee (ISC) has released a highly-anticipated whitepaper outlining the timeline and activities required to move to a two-day settlement cycle (T+2) in the U.S.

The whitepaper, "Shortening the Settlement Cycle: The Move to T+2", and the accompanying high-level Executive Summary deck, provide guidelines for the proposed migration to T+2 for equities, corporate and municipal bonds, and unit investment trust trades by Q3 2017. The 2017 implementation timeframe was established based on industry analysis and is contingent upon obtaining regulatory certainty in a timely manner and successfully completing industry-wide testing.

Currently, the U.S. settlement has a three-day settlement cycle (T+3). The Depository Trust & Clearing Corporation (DTCC), along with industry organizations including the Securities Industry & Financial Markets Association (SIFMA) and the Investment Company Institute (ICI), among others, believe that shortening the settlement cycle to T+2 will substantially reduce operational and systemic risk across the industry and for investors, lower liquidity needs, and limit pro-cyclicality. The shortened settlement cycle will also align the U.S. settlement cycle with other markets across the globe.

SIFMA and ICI, co-chairs of the ISC, have also submitted a letter to regulators outlining specific regulatory changes needed to facilitate the move to T+2.