Accelerating the U.S. Securities Settlement Cycle to T+1
Published December 1, 2021
In an effort to reduce risk, strengthen and modernize securities settlement in the U.S. financial markets, representative organizations under the leadership of the Securities Industry and Financial Markets Association (SIFMA)1, the Investment Company Institute (ICI)2, and The Depository Trust & Clearing Corporation (DTCC) 3 initiated an industry change to accelerate the settlement cycle from trade date plus 2 days (T+2) to trade date plus one day (T+1).
Following the February 2021 DTCC whitepaper outlining the need and approach for moving to T+1, Advancing Together: Leading The Industry to Accelerated Settlement, the U.S. financial services industry formed an Industry Steering Committee (ISC) and an Industry Working Group (IWG) 4 with the intent of developing industry consensus for an accelerated settlement cycle transition, including to understand the impacts, evaluate the potential risk, and develop an implementation approach. The purpose of this report is to summarize the work conducted by these collective groups and present recommendations required to be undertaken by the financial services industry to accelerate the U.S. settlement cycle to T+1.
Industry Steering Committee Recommendations
To support the effort, the ISC engaged Deloitte & Touche LLP (Deloitte)5 to inform the governing bodies, facilitate the working sessions to analyze the benefits and barriers to moving to T+1, and coordinate with the industry on recommending solutions for the transition. While concerns have been raised related to the compressed settlement timeframe and several open issues remain to be solved, for example, settlement of offerings of new securities, the ISC recommends, and is committed to, a transition to a T+1 settlement cycle.
1 About SIFMA. SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate for legislation, regulation and business policy affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org
2 About ICI. The Investment Company Institute (ICI) is the leading association representing regulated funds globally, including mutual funds, exchange-traded funds (ETFs), closed-end funds, and unit investment trusts (UITs) in the United States, and similar funds offered to investors in jurisdictions worldwide. ICI seeks to encourage adherence to high ethical standards, promote public understanding, and otherwise advance the interests of funds, their shareholders, directors, and advisers. ICI’s members manage total assets of U.S.$29.1 trillion in the United States, serving more than 100 million U.S. shareholders, and U.S.$9.6 trillion in assets in other jurisdictions. ICI carries out its international work through ICI Global, with offices in Washington, DC, London, Brussels, and Hong Kong. 3 About DTCC. With over 45 years of experience, DTCC is the premier post-trade market infrastructure for the global financial services industry. From 21 locations around the world, DTCC, through its subsidiaries, automates, centralizes and standardizes the processing of financial transactions, mitigating risk, increasing transparency and driving efficiency for thousands of broker/dealers, custodian banks and asset managers. Industry owned and governed, the firm simplifies the complexities of clearing, settlement, asset servicing, data management, data reporting and information services across asset classes, bringing increased security and soundness to financial markets. In 2020, DTCC’s subsidiaries processed securities transactions valued at more than U.S. $2.3 quadrillion. Its depository provides custody and asset servicing for securities issues from 170 countries and territories valued at U.S. $73.5 trillion. DTCC’s Global Trade Repository service, through locally registered, licensed, or approved trade repositories, processes 15 billion messages annually.
4 Industry Working Group participation consisted of 800+ subject matter advisors representing over 160 firms from buy- and sell-side firms, custodians, vendors, and clearinghouses.
5 About Deloitte. As used in this document, “Deloitte” means Deloitte & Touche LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of our legal structure. Certain services may not be available to attest clients under the rules and regulations of public accounting. This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.
6 For the purposes of this paper, “allocations” is defined as the allocation sent to an Executing Broker from order placer instructing how to allocate a trade amongst the Clearing Brokers/Custodians/Prime Brokers.
7 A SWIFT (Society for Worldwide Interbank Financial Telecommunication) message combines ISO code with SWIFT connectivity to create a standard and automated communication flow between investment managers, custodian banks, local agents, and market information