SIFMA, DTCC and the Investment Company Institute (ICI) released their roadmap to T+1 settlement for U.S. Securities in a report titled “Accelerating the U.S. Securities Settlement Cycle to T+1,” published on December 21, 2021. The report is the culmination of significant industry efforts to evaluate the risks and benefits of shortening the settlement and developing a plan for implementation. The target date for the T+1 conversion is Q1 or Q2 of 2024.

According to the industry group, “Reducing the settlement cycle will create greater efficiencies in the market and further protect investors.” Efficiencies and benefits include:

  • Counterparty risks between all participants would be reduced and should lower margin and collateral requirements.
  • Investors will have quicker access to funds after trade execution.
  • Overall systemic risks, operational risks, and liquidity needs should be reduced.

These gains become increasingly beneficial in times of high volatility and stressed market conditions.

The report includes specific recommendations to be addressed and also acknowledges technology and regulatory changes that will be required. More complex than when the industry moved to T+2 settlement in 2017, T+1 presents significant challenges to technology, operations, compliance, and business resources. In many cases, there will be less than 24 hours from trade execution to settlement. Consider the impact to trade allocations, securities lending and recalling securities, trade affirmation, daily funding, and system batch cycles. Don’t forget about global settlements and movement of cash and securities. There are many critical processes that will need to be addressed to ensure a smooth implementation and achieve the overall efficiencies and risk reduction.

A current state assessment of your business model and operations is the first step to identify the potential impacts to your firm. Is self-clearing still a viable option? Will your clearing firm be properly prepared? Do you have the resources required to manage the change? How will you adapt trading and operational process flows? Do you have the requisite expertise to fully evaluate how this will affect your business model? These are difficult questions that will require thorough analysis and evaluation. Now is the time to perform the assessment and make decisions on mitigation strategies.

At Oyster, our experts are actively engaged with market participants including clearing brokers, vendors, broker-dealers and RIAs. We have extensive knowledge of the major clearing firms’ products and services, trading platforms and other service providers. We provide perspective and guidance on how to best align processes and fully utilize the services of your key partners. Our former regulatory and industry experts will also help you identify opportunities to improve desk performance and profitability, and share specific industry compliance and supervisory best practices.

About The Author
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Jeffrey Gearhart

Jeffrey Gearhart is an intuitive, analytical leader with over 30 years of experience in banking and capital markets businesses. Prior to joining Oyster, he held senior leadership roles with The Bank of New York Mellon, including business line COO, CFO, business development and relationship management.