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“Changes within DTCC that are under consideration could include expanding the CNS 11:30 cut-off to later in the day for T+0 activity,” Hillery said, “But if we do that, how late do we go – 2 p.m.? Should we think about moving it back as late as the market close?”
DTCC Solutions To Reduce Fails
A number of DTCC Solutions offerings that create efficiencies between the middle and back office – and reduce costly fails and trade exceptions – were discussed at the SIFMA Ops Conference.
These new programs include DTCC’s Trade State Manager, which gives brokers, managers and custodians, a centralized view into trades in near real time – plus communication channels and an audit trail; Automating SSIs Together (ASSIsT), which introduces a service for broker-dealers to get Standing Settlement Instructions (SSIs) from non-automated buy-side firms; and Global Custodian Direct (GC Direct), another program that automates SSIs.
Although the industry-wide move to T+2 has been broadly communicated and set for September 5th of this year – a shortened settlement cycle from three to two days – it is perhaps not as widely known that DTCC clients already have the ability to settle on Trade Date plus one day (T+1) or even same day (T+0).
The topic of accelerated settlement was one of several topics discussed on a panel about DTCC initiatives (see sidebars) at the recent SIFMA Operations and Exhibition 2017, held May 8-11 in Boca Raton, Fla. The theme of the conference was “Transforming the Industry into The New Reality.”
This panel, which focused on market structure innovation at DTCC, featured DTCC’s Daniel Thieke, Managing Director and General Manager, Settlement & Asset Services, as moderator. He was joined by panelists Joseph M. Liguori, Managing Director, JPMorgan Chase & Co.; Michele Hillery, Executive Director, Equity Clearing Services, DTCC; John Vinci, Head of Core Project Management, DTCC; and James Hraska, Managing Director & General Manager of DTCC’s Fixed Income Clearing Corp. (FICC).
Understanding Industry Demand
Accelerated settlement is attractive to some segments of the equities market, according to DTCC’s Thieke. ”We’re trying to understand the level of demand for accelerated settlement,” Thieke said. “We’re also exploring ways to do this more efficiently.” Under the current accelerated settlement model, DTCC has processed more than 500,000 trades in either a T+0 or T+1 cycle, so far in 2017.
Accelerated settlement would continue to be optional, explained DTCC’s Hillery. The current requirement to settle same-day (T+0) is that trades need to be accepted into NSCC’s Continuous Net Settlement (CNS) by 11:30 a.m. ET.
“Changes within DTCC that are under consideration could include expanding the CNS 11:30 cut-off to later in the day for T+0 activity,” Hillery said, “But if we do that, how late do we go – 2 p.m.? Should we think about moving it back as late as the market close?”
New FICC Programs
DTCC’s Fixed Income Clearing Corporation (FICC) received approval from the U.S. Securities and Exchange Commission in early May for the Centrally Cleared Institutional Trip-party (CCIT) and Sponsored Membership initiatives. As James Hraska, Managing Director & General Manager of FICC, explained during the panel, this means FICC can now expand the availability of central clearing in the repo market, strengthening both the safety and efficiency of the marketplace. FICC is the only central counterparty (CCP) platform in the U.S. that clears tri-party repo and debt transactions.
“We believe enabling a larger group of participants to use central clearing through the CCIT Service and sponsored membership program strengthens the entire market,” said Hraska. “This means reduced counterparty risk, as well as opportunities for potential balance sheet netting and capital relief.”
Read More about Accelerated Settlement
In order to take this discussion to the next level, DTCC has organized a Working Group to further analyze this issue. The Working Group includes a number of leading Wall Street firms: five sell-side, three buy-side, one custodian and an exchange.
The group has held several conference calls over the last couple of months, convening about every two weeks. “We’re looking to create a viable industry solution, Thieke said. That could include expanding the Working Group, where appropriate, to increase industry input and collaboration. “Our goal is to deliver value based on industry needs,” Thieke said.
Potential solutions are already being considered. One is using the same symbols for orders with different required clearing instructions. Another is using separate symbols to designate settlement time.
Thieke said the issue of “best execution” has already been brought up in the meetings, and it raises interesting questions. “For example,” he said, “How would best execution be defined if the option of accelerated settlement is introduced in relation to best price?”
He stressed that accelerated settlement is only being looked at for equities at this time, but he could see it expanding into other asset classes – especially if the concept takes root in the cash market and if the demand is there.
Streamline Processes
DTCC’s Vinci, who explores how the firm can leverage its current offerings, explained that DTCC and the industry are looking for ways to reduce costs and streamline processes. “What we continually try to do is to connect the dots in a more efficient way in the post-trade lifecycle,” Vinci said.
The DTCC Solution products Trade State Manager, Global Custodian Direct and Automating SSIs Together (ASSIsT) are examples of this (see sidebar “Reduce Fails”).
While emerging technologies like distributed ledgers were a frequent topic of discussion at the SIFMA Ops conference, Vinci said investigating new technologies have a separate benefit: They push businesses to scrutinize their processes with the potential to reinvent themselves. “Whether it’s through using distributed ledgers or robotics or whatever new automation makes sense, our role is to reduce costs for the industry and clients,” Vinci said.
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“Changes within DTCC that are under consideration could include expanding the CNS 11:30 cut-off to later in the day for T+0 activity,” Hillery said, “But if we do that, how late do we go – 2 p.m.? Should we think about moving it back as late as the market close?”