Investment Operations

Industry Coordinating Efforts on Move to T+1 Settlement

Derivatives Trade Lifecycle Training

A Shorter Settlement Cycle Will Benefit Investors and Market Participant Firms by Reducing Systemic and Operational Risks

The Securities Industry and Financial Markets Association (SIFMA), the Investment Company Institute (ICI), and The Depository Trust & Clearing Corporation (DTCC) are collaborating on efforts to accelerate the U.S. securities settlement cycle from T+2 to T+1, the organizations confirmed jointly today.

Working closely with their members and other key stakeholders, the organizations said they are outlining key steps to shorten the cycle for secondary market transactions, identifying priority issues that need to be addressed and conducting the necessary due diligence and resolution of these critical issues.

According to a joint statement, the groups began discussing shortening the settlement cycle with their members last year and aim to complete their analysis on the next steps to achieving T+1 by the end of Q3 2021. Shortly after that work, the organizations plan to develop a definitive timeframe for moving to T+1. In addition to their efforts to shorten the settlement time, SIFMA, ICI and DTCC said they will assess what it may take to further accelerate the settlement cycle beyond T+1 and explore the role that emerging technologies could play.

“Accelerating the settlement cycle, as we and our partners ICI and DTCC know from experience, is a complex and significant undertaking,” said SIFMA President and CEO Kenneth E. Bentsen, Jr. “A shorter settlement timeframe can benefit investors and market participants by reducing credit, market and liquidity risks and promoting financial stability. Our plan is to fully address the business and operational impacts of the change first, to ensure a smooth transition and avoid any unnecessary market risk,” Bentsen said.

SIFMA, ICI and DTCC Previously Led Transition from T+3 to T+2

In 2017, SIFMA, ICI and DTCC led the effort to shorten the U.S. securities settlement cycle to T+2. That multi-year effort required significant coordination across the industry and spanned multiple operations, functions and regulations. Similarly, analysts say moving to T+1 will be a significant undertaking, and the organizations intend to partner with relevant stakeholders to achieve the many benefits of accelerating settlement to T+1.

According to DTCC President and CEO Michael C. Bodson, recent volumes and volatility demonstrate that the time to move to a shorter settlement cycle is now. “While we are committed to fast-tracking this work and can support T+1 with existing DTCC technology today, we realize that this is a complex undertaking that will require close collaboration across the industry,” Bodson said.

Initiative Needs to Account for Complex Issues

Though SIFMA, ICI and DTCC are committed to pursuing this work vigorously, there are many issues that must be considered before the organizations can determine an implementation date. The organizations identified a series of goals to advance this effort, including:

  • Mitigating risks to investors and industry participants;
  • Analyzing and improving current business and operational processes;
  • Minimizing the disruption of important industry services;
  • Ensuring new risks are not introduced; and
  • Conducting a comprehensive cost-benefit analysis.

In addition, industry watchers say multiple regulatory bodies, including the Securities and Exchange Commission (SEC), will need to be engaged to bring this initiative to fruition.