US securities markets are targeting a move to next-day settlement in the first half of 2024.
A new report published by The Securities Industry and Financial Markets Association (Sifma), the Investment Company Institute (ICI), and The Depository Trust & Clearing Corporation (DTCC), details changes market participants need to consider and implement in order to transition from T+2 to T+1.
The plans were formulated on the back of working group sessions with more than 800 participants from 160 organisations, including buy-side and sell-side firms, custodians, vendors and clearinghouses.
The Industry Steering Committee that oversaw the process says the three-year timeline will provide enough time for firms to assess the changes they need to undertake, for the industry to conduct comprehensive testing, and for regulators to make the necessary regulatory changes.
“As we saw during the industry move from T+3 to T+2, shortening the settlement cycle requires a collaborative effort from market participants across the industry, and the development of this report is a key step in making the vision of accelerated settlement a reality,” says Sifma president and CEO Kenneth Bentsen, Jr. “We thank the industry representatives who participated in hundreds of hours of daily, remote working sessions to help us evaluate potential risks, understand the impacts, and develop a sound approach for implementation.”
As next steps, firms are encouraged to begin to work with their counterparties, custodians, vendors, regulators, and clients to better understand internal impacts related to timing requirements and deadlines, system requirements and improvements, and process changes.
While the paper confirms that the industry achieved consensus around T+1, it also indicated that further shortening the settlement cycle is not feasible in the short term. The report explains that moving beyond T+1 would require an extensive overhaul of current-day clearance and settlement infrastructure, changes to business models, revisions to regulatory frameworks, and potentially the implementation of real-time currency movements.