The Securities Industry Association is to reevaluate the benefits of moving to next-day trade processing (T+1) by 2005 in light of shrinking IT budgets and shifts in business strategy since September 11.
"We are wrestling with a very difficult business climate these days," says Donald Kittell, SIA's executive vice president. "And, we are wrestling with some tough decisions with respect to the design and implementation of the program."
Kittell notes that in addition to dealing with a crisis in public confidence, the industry has reduced its information technology spending by as much as 10 per cent. Firms have also committed significant resources to business continuity planning since September 11, "something that was not envisioned when we began planning the project in 1999."
Over the next few months SIA will reevaluate the industry's projected costs and benefits of the move to T+1. At its July meeting, the SIA board of directors will examine the credit-risk benefits and the tradeoffs between credit and operational risks if the trade clearance and settlement cycle were to be compressed to one day from three. The board will also study the goals and implementation strategy for straight-through processing, with and without a conversion to T+1.
According to Kittell, there are other policy issues that need to be addressed within the next few months, particularly the role of the regulatory agencies in the move to T+1. "Straight-through processing/T+1 has to date been an industry-driven initiative...There are some in the industry who feel that this must be mandated by the Securities and Exchange Commission," he says.
Securities now clear and settle three business days after the transaction. Under T+1, trades would clear and settle on the next business day.