On March 22, 2017, the Securities and Exchange Commission (SEC) shortened the settlement cycle for trades via broker-dealers from T +3 to T +2. This change meant that when you bought or sold shares, the trades would need to be settled in 2 days instead of 3. This represented a significant change as securities had been settled T+3 since 1993. But as we know, things change, and technology improves, and now the SEC is shifting from T+2 to T+1. The change will take place one year from now, impacting settlement for transactions in US cash equities, corporate debt, and unit investment trusts.
CI has received a comment from Val Wotton, Managing Director, Institutional Trade Processing and President & CEO of DTCC ITP LLC, reflecting on this forthcoming change. Wotton says that market participants need to have preparations underway to be certain everything will work in advance of the change. DTCC, or the Depository Trust & Clearing Corporation, is the entity that settles these trades, managing quadrillions of dollars in transactions every year. Wotton says testing is necessary for a successful implementation.
“To meet the accelerated settlement timeframe, it is critical that market participants eliminate manual processes and maximise automation in the post-trade pre-settlement space. Specifically, the SEC highlighted that institutional trades must be allocated, confirmed and affirmed as soon as is technologically possible and no later than trade-date, referred to as Same Day affirmation (SDA),” said Wotton.
He said that automated solutions already exist, and this will reduce the number of “post-trade exceptions” and any costly reconciliation needed.
“Trade affirmation and instruction for settlement can be fully automated when a centrally matched trade between an investment manager and executing broker occurs, eliminating the need for either party to take further action. DTCC is working in partnership with the Securities Industry and Financial Markets Association (SIFMA) and the Investment Company Institute (ICI) to educate and assist market participants on the requisite preparations for T+1 to ensure a smooth industry implementation on May 28, 2024.”
DTCC has published a blog post on the topic available here.
Now the next question is when do we get to T+0 or Atomic Settlements (instantaneous)?