US securities are likely to move to next-day settlement during the first half of 2024, according to a report published today by key industry organisations.
The Depository Trust & Clearing Corporation (DTCC), the Investment Company Institute (ICI) and the Securities Industry and Financial Markets Association (SIFMA) predict that a transition from T+2 to T+1 settlement in H1 2024 will give impacted firms sufficient time to assess the changes required, to conduct testing and for financial supervisors to implement the necessary regulatory amendments.
This will deliver T+1 settlement for US securities slightly less than a quarter of a century after moves to deliver this reduced settlement cycle, led by the Securities Industry Association, were “postponed” in July 2002.
The report by the three participating organisations, Accelerating the US Securities Settlement Cycle to T+1, provides market participants with a roadmap for managing this transition.
The Industry Steering Committee advises that firms should be working with counterparties, custodians, regulators and service vendors to understand the implications relating to deadlines and other timing considerations, system requirements and process changes.
However, it rules out the likelihood of transitioning to T+0 for US securities, which the report says is not feasible in the short term. This, it says, would require an extensive overhaul of current-day clearance and settlement infrastructure, changes to business models and regulatory frameworks, along with a requirement for real-time currency movements to support same-day settlement.
Commenting on these developments, DTCC president and CEO Michael Bodson says: “From our ongoing conversations with market participants and stakeholders, we’re in broad agreement on shortening the settlement cycle to T+1 to deliver significant capital efficiencies and risk mitigation benefits to the entire industry.
“We look forward to continuing to work closely with the industry on this important initiative to modernise market structure, as we did during the move from T+3 to T+2 in 2017, to increase the overall efficiency of the securities markets and remove costs and risks.”
Eric J Pan, ICI president and CEO, says: “Shifting to T+1 will strengthen the financial system and offers tangible benefits to investors by reducing their risk exposure and enabling them to more quickly leverage investment opportunities.”
SIFMA president and CEO Kenneth E Bentsen jr says: “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.”
In February, the DTCC issued a roadmap detailing plans to transition US securities settlement to T+1.
In April, the industry enlisted Deloitte & Touche LLP to convene working groups with more than 160 organisations across the industry, with an Industry Working Committee overseeing this consultation and report.
