DTCC Connection

Oct 02, 2015 • DTCC Connection

The Road to a Shortened Settlement Cycle

By Jessica York

The Road to a Shortened Settlement CycleSymposium Underscores DTCC’s Role as a Critical Partner 

After much anticipation, the U.S. Securities and Exchange Commission (SEC) formally expressed it’s support of a move to a two-day settlement cycle (T+2) in the U.S. in a white letter issued on September 16 from SEC Chair Mary Jo White to the Securities Industry and Financial Markets Association (SIFMA) and the Investment Company Institute (ICI).

During his keynote speech in New York at SIFMA’s T+2 Symposium: The Road to a Shortened Settlement Cycle, SEC Director Stephen Luparello echoed White’s remarks, acknowledging the “tremendous amount of work done to date by a broad range of market participants toward achieving the transition to T+2.”

The symposium was attended by more than 200 senior operations, technology, legal and compliance, risk, and corporate actions professionals, as well as service providers and regulators. The event provided an overview of the industry’s next steps as it advances from the selection of the Q3 2017 proposed launch timeframe to the planning, testing and implementation of the move to T+2. Speakers also addressed how their firms are getting ready for the move, the regulatory changes involved and the impact of those changes.

Panel Overview

The first panel, moderated by SIFMA Managing Director, Operations, Technology & BCP Thomas Price, discussed the steps ahead as the industry readies for the material changes that will result from a move to a T+2. They include systems changes, cut-off time updates, and rules and services guide changes. DTCC Managing Director & General Manager, Settlement & Asset Services Daniel Thieke – along with panelists from Edward Jones, Morgan Stanley and BlackRock – emphasized DTCC’s role as “a critical partner.” The industry expects DTCC to provide “key support and guidance” as these changes are communicated to industry participants and later tested.

The following panel outlined the important rules and regulatory changes that are essential to the move to T+2. Speakers from the SEC, the law firm of Debevoise & Plimpton, Fidelity Investments and Morgan Stanley outlined the three major categories of rules that may require amendment for an effective transition:

  1. Rules that specifically establish or reference a T+3 settlement cycle;
  2. Rules that are keyed to settlement date and require pre-settlement actions; and
  3. Rules that are keyed to settlement date but require post-settlement date actions.

A Q4 2015 timeframe has been established to publish the detailed proposed rule changes.

Moderated by PwC Principal, Banking & Capital Markets Advisory Christopher Pullano, a third panel of speakers from DTCC, Fidelity Investments, Goldman, Sachs & Co. and Wells Fargo Advisors LLC explored how their firms are preparing for the systems, process, and technology changes that each firm must make in order to support a shortened settlement cycle. DTCC Vice President John Abel emphasized the importance of an industry-wide testing effort and outlined DTCC’s role in building out a new test infrastructure.

The final panel session, “SIFMA Societies – Preparing for T+2”, was moderated by SIFMA Vice President, Regulator Policy Operations William Leahey. During this segment, officers of the SIFMA Securities Operations, Customer Account Transfer, and Corporate Actions sections all discussed how their constituents are working towards a move the U.S. to T+2.

SIFMA plans to hold future T+2 symposiums as the industry moves forward in its implementation timeline.

Did you know?

  • 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. 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.
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