SIFMA Supports Move to Shorten the Settlement Cycle to T+2
New York, NY, April 16, 2014– SIFMA today announced it supports a move to shorten the settlement cycle for U.S equities, corporate bonds and municipal bonds to trade date plus two days (T+2) from the current T+3. SIFMA recognizes that shortening the settlement cycle on a timeframe that is workable for all market participants can meaningfully benefit investors by reducing systemic risk.
“SIFMA is committed to helping the financial industry identify new ways to improve market practices, enhance risk management, and promote efficiency. Shortening the settlement cycle could lead to important reductions in operational risk, more efficient allocation of industry capital, and streamline the clearing and settlement process,” said Kenneth E. Bentsen, Jr., SIFMA president and CEO. “SIFMA looks forward to working with all market participants to ensure a smooth implementation that is carefully executed so as not to unintentionally disrupt operations or negatively impact investors.”
The Depository Trust & Clearing Corporation (DTCC) in 2012 initiated a renewed focus on settlement cycles and commissioned a study, with guidance from SIFMA, to examine the costs and benefits of shorter settlement cycles in the U.S. DTCC is seeking to work with asset managers, broker-dealers, custodian banks, and other market stakeholders to shorten settlements for equities, corporate and municipal bonds, and unit investment trusts to no longer than T+2. European markets are moving to T+2 for these securities, and much of Asia is already on a T+2 settlement cycle. SIFMA will work with DTCC to determine the best timing to implement an accelerated settlement cycle in the U.S.
“We are delighted that SIFMA has decided to endorse a move to T+2,” said Michael Bodson, DTCC’s President and CEO. “Our own analysis, based on comprehensive discussions with the industry and robust cost-benefit studies, indicate that a shortening of the settlement cycle for US equities, municipal and corporate bonds and unit investment trusts will drive down industry risk exposures and lead to greater efficiency. We look forward to working with the industry on this initiative.”
SIFMA notes that shortening the settlement cycle is a fundamental change to existing market practices that must be implemented with great care to avoid any operational disruptions that could negatively impact investors. SIFMA believes the best path forward is a measured approach that recognizes the challenges to diverse market participants, including individual investors, and products.
SIFMA recommends that the industry, DTCC and regulators continue to work together to accomplish key “building blocks” that together over time will ensure a smooth transition to T+2. Key building blocks for shortening the settlement cycle include compression of timeframes for clearing and settling, specific regulatory rule changes, changes to the trade affirmation process, and other systems and process changes. Work on many of these building blocks has already commenced.
Randy Snook, SIFMA executive vice president, business policies and practices, stated, “A pragmatic approach to shortening the settlement cycle will enable market participants and regulators to better understand the challenges and impacts on markets, products, systems, and customers, as well as the regulatory changes necessary for the shift to T+2. SIFMA is committed to working with all market participants to accomplish these building blocks in a coordinated and efficient manner, especially given regulators’ recent push to reduce risk and improve market operations across the industry.”