A trio of U.S. industry groups is championing the idea of further shortening the trade settlement cycle from T+2 to T+1.
The U.S. Securities Industry and Financial Markets Association (SIFMA), the Investment Company Institute (ICI) and The Depository Trust & Clearing Corporation (DTCC) have announced that they’re working together to reduce the U.S. settlement cycle.
The groups began discussing the idea of moving to T+1 settlement last year, and hope to complete their analysis by the end of the third quarter. After that, they will develop a transition roadmap.
“Accelerating the settlement cycle, as we and our partners ICI and DTCC know from experience, is a complex and significant undertaking,” said SIFMA president and CEO, Kenneth Bentsen, Jr., in a release.
Among other things, the initiative will consider issues such as mitigating transition risk, enhancing operational processes and minimizing industry disruption.
“A shorter settlement timeframe can benefit investors and market participants by reducing credit, market and liquidity risks and promoting financial stability. Our plan is to fully address the business and operational impacts of the change first, to ensure a smooth transition and avoid any unnecessary market risk,” Bentsen Jr. said.
In addition to working on a move to T+1, the groups intend to examine what it would take to shorten settlement even further, including the use of emerging technology. For instance, blockchain advocates have touted that kind of technology as a way to eventually provide real-time settlement.
“Recent volumes and volatility demonstrate that the time to move to a shorter settlement cycle is now,” said Michael Bodson, president and CEO of DTCC.
“We look forward to working closely with our colleagues, members, regulators and key stakeholders to achieving T+1 and ultimately delivering reduced risk and margin relief for the benefit of market participants and underlying investors,” he added.