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The Impact of T+2 on Trade ProcessingIn a June 2015 white paper, “Shortening the Settlement Cycle: The Move to T+2,” the T+2 Industry Steering Committee (T+2 ISC), Industry Working Group (IWG) and sub-working groups (SWGs) identified a number of regulatory changes and industry-level requirements needed to move to a shortened settlement cycle (T+2) in the U.S.

In the first of this three-part series, Jon Ciciola, Director, DTCC Settlement & Asset Services, shared insight into potential effects of T+2 on asset servicing and corporate actions.

In the second installment, John Abel, Vice President, DTCC Settlement Services, discussed the regulatory and documentation changes needed in conjunction with T+2, and how different segments of the industry must react. In this final installment, Bob Cavallo, Director, DTCC Settlement Product Management, discusses the efforts as a participant in one of the industry-led SWGs, and the impact T+2 will have on trade processing.

DTCC Connection: Could you discuss your role as a member of one of the T+2 ISC Sub-Working Groups?

Bob Cavallo: In 2014, DTCC, in collaboration with representatives from the financial services industry, including SIFMA and the ICI, established the T+2 Industry Steering Committee, comprised of approximately 20 participants across key market segments. The Steering Committee, in turn, identified nearly 75 industry experts across market segments and formed the Industry Working Group.

The Steering Committee provided governance, direction, and support for the effort to migrate to a T+2 settlement cycle, while the Working Group supported the Steering Committee by identifying the business requirements, regulatory changes and next steps. Together, the Steering Committee and Working Group identified 17 industry work streams, across 12 market segments, to perform requirements analysis in order to understand the impact of moving to T+2.

The 17 work streams were grouped into five Sub-Working Groups (SWGs) named Team Alpha, Bravo, Charlie, Delta and Lima. Team Alpha focused on identifying the in-scope products for the migration to T+2; Team Bravo on identifying the buy-side industry requirements; Team Charlie on identifying operational processes including asset servicing; Team Delta on identifying sell-side as well as DTC/NSCC industry requirements; and Team Lima on identifying regulatory and legal changes.

I was appointed a DTCC Team Lead for the Delta Group, along with my colleague Tom Sakaris, DTCC Managing Director, Equities Clearing. We worked closely with our Industry Chair Thom Tremaine, an Executive Vice President from Raymond James’ Operations and Administrations Group, to ensure that we kept our team on schedule and that we left no stone unturned in identifying potential issues or requirements that would have to be addressed as we moved to a T+2 settlement cycle.

The SWGs, staffed by close to 600 industry subject matter experts, met on a regular basis for several months, beginning in November 2014. The Delta SWG had participation from more than 100 industry subject matter experts, including Michele Hillery, DTCC Vice President, Product Management and Bill Kapogiannis, DTCC Vice President, Equity Clearing Product Management Group. Our group discussed topics such as prime brokerage, securities lending, street-side changes and retail funding/retail markets. Discussion points — and ultimately recommendations — were identified by the group, which was then categorized as industry requirements, impacts or best practices and industry initiatives.

DC: Were there specific transaction types that were discussed as part of your Sub Working Group?

BC: The Delta SWG discussed many topics, including how shortening the settlement cycle would pertain to trades that were affirmed through the Omgeo process.

The group quickly zeroed in on three specific transaction types: Affirmed Institutional Trades, ID Net Institutional Trades and Prime Broker Trades. The consensus within the group was that there needed to be changes to the processing times for these types of transactions to ensure that there would be no disruption when it came to the shortened settlement of these items. In short, all three of these transaction types will move their respective cut-off times to 12 p.m. on T+1.

Aligning the cut-off times will help to streamline the settlement process and reduce the need to have different processing schedules.

DC: What aspect of being a part of the Sub Working Group did you find to be the most beneficial?

BC: Working with our clients to ensure that we were able to capture their thoughts as we move towards T+2 was a great experience and one that I found to be extremely beneficial.

At DTCC, we continue to promote T+2 and the expected changes. Next steps include continued collaboration with regulators, the development of test plans and the development of an industry-wide implementation plan. We will continue to keep our clients informed of our progress and engage with them to ensure that they are ready and we are ready for this historic move to T+2.

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