The industry supports a move to shorten the settlement cycle for U.S. equities, corporate bonds, and municipal bonds to trade date plus two days (T+2) from the current T+3 in the third quarter of 2017.*
The industry believes that shortening the settlement cycle will meaningfully benefit investors and reduce counterparty risk, decrease clearing capital requirements, reduce pro-cyclical margin and liquidity demands, and increase global settlement harmonization.
DTCC commissioned The Boston Consulting Group to conduct the cost benefit analysis of shortening the U.S. settlement cycle, focusing on industry areas of concern, including risk reduction, capital optimization, and cost reduction from streamlining processes. The report concluded that shortening the settlement cycle to T+2 is expected to yield benefits for the industry including counterparty risk reduction, operational process efficiencies, potentially lower collateral requirements and liquidity demands, and enhanced global settlement synchronization.
Following the study, DTCC collaborated with representatives from the financial services industry, including SIFMA and ICI, to establish the ISC as a governing body to oversee the shortened settlement cycle initiative on behalf of the industry. In June 2015, the ISC published the T+2 Industry Requirements White Paper summarizing the benefits of shortening the settlement cycle and outlining requirements for T+2 implementation. In conjunction with the White Paper, SIFMA and ICI submitted a letter to the SEC requesting the necessary regulatory changes required for the move to a two-day settlement cycle in the US by the end of Q3 2017.
On March 14, 2016 the SEC filed a rule change for comment. “Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of a Proposed Rule Change Consisting of Proposed Amendments to Rules G-12 and G-15 to Define Regular-Way Settlement for Municipal Securities Transactions as Occurring on a Two-Day Settlement Cycle and Technical Conforming Amendments”.
FINRA published aligned rule changes for comment on April 4, 2016. The industry is asking participants to prepare for T+2 settlement based on the proposed rules.
How Will T+2 Impact Users?
The move to a T+2 settlement cycle will impact organizations across the financial services industry and throughout the trade lifecycle. Impacted market participants include issuers, asset managers, broker-dealers (retail and institutional), global custodians, vendors, service bureaus, transfer agents, exchanges, clearing firms, and depositories over the life of a trade.
- Trade Processing
- Asset Servicing
- Global considerations
- Liquidity and collateral management
- Security lending
- Dividend reinvestment
- Options exercise and assignment processes
- Regulatory changes
- Plus other considerations
T+2 Implementation Timeline
|January 2016||T+2 Industry play book published|
|March 14, 2016||The SEC filed a rule change for comment|
|April 4, 2016||FINRA published rule changes for comment|
|December 31, 2016||Complete all remedial activities|
|Q2 2017||Participate in coordinated industry testing (DTCC, vendors and service bureaus)|
|Mid-Q3 2017||Migrate to T+2 settlement|
* Reference SIFMA Shortened Settlement Cycle Overview