DTCC outlines settlement cycle position
The Depository Trust & Clearing Corporation (DTCC) has released a white paper outlining the rationale for supporting a move to shorten the settlement cycle in the US financial markets for equities, corporate and municipal bonds and unit investment trust trades.
DTCC’s view is that shortening the time period between trade execution and settling payment for US cash securities transactions protects the financial markets by reducing credit and liquidity risks to both the industry and the individual investor.
After conducting a robust due diligence process, which included risk studies, a cost-benefit analysis facilitated by the Boston Consulting Group and industry outreach, DTCC is advocating a move to a two-day settlement period or T+2.
“After a comprehensive assessment of the potential impact on market participants, it is clear that time equals risk. A shortened settlement cycle will substantially reduce risk across the industry and for underlying investors,” said Michael Bodson, president and CEO DTCC.
DTCC puts forward several reasons to support its view that a shortened settlement cycle would mitigate risk for all industry participants, including the individual investor.
First, it would foster a reduction of risk by moving trades more quickly to settlement, enabling funds to be freed up faster for reinvestment and reducing credit and counterparty exposure. Second, a shortened settlement cycle would reduce procyclical increases in margin and liquidity needs that can happen during times of volatility, exacerbating financial instability.
Finally, it would further reduce the liquidity requirement of DTCC’s subsidiary, National Securities Clearing Corporation’s (NSCC), freeing up capital for broker-dealers by reducing the NSCC Clearing Fund requirement.
In the first half of 2014, expressions of support for a move to T+2, in a timeframe acceptable to the industry, were received from various industry groups, including the Investment Company Institute (ICI), the Association of Global Custodians (AGC), the Association of Institutional Investors and the Securities Industry and Financial Markets Association (SIFMA).
DTCC’s view is that shortening the time period between trade execution and settling payment for US cash securities transactions protects the financial markets by reducing credit and liquidity risks to both the industry and the individual investor.
After conducting a robust due diligence process, which included risk studies, a cost-benefit analysis facilitated by the Boston Consulting Group and industry outreach, DTCC is advocating a move to a two-day settlement period or T+2.
“After a comprehensive assessment of the potential impact on market participants, it is clear that time equals risk. A shortened settlement cycle will substantially reduce risk across the industry and for underlying investors,” said Michael Bodson, president and CEO DTCC.
DTCC puts forward several reasons to support its view that a shortened settlement cycle would mitigate risk for all industry participants, including the individual investor.
First, it would foster a reduction of risk by moving trades more quickly to settlement, enabling funds to be freed up faster for reinvestment and reducing credit and counterparty exposure. Second, a shortened settlement cycle would reduce procyclical increases in margin and liquidity needs that can happen during times of volatility, exacerbating financial instability.
Finally, it would further reduce the liquidity requirement of DTCC’s subsidiary, National Securities Clearing Corporation’s (NSCC), freeing up capital for broker-dealers by reducing the NSCC Clearing Fund requirement.
In the first half of 2014, expressions of support for a move to T+2, in a timeframe acceptable to the industry, were received from various industry groups, including the Investment Company Institute (ICI), the Association of Global Custodians (AGC), the Association of Institutional Investors and the Securities Industry and Financial Markets Association (SIFMA).
Found this useful?
Take a complimentary trial of the FOW Marketing Intelligence Platform – the comprehensive source of news and analysis across the buy- and sell- side.
Gain access to:
- A single source of in-depth news, insight and analysis across Asset Management, Securities Finance, Custody, Fund Services and Derivatives
- Our interactive database, optimized to enable you to summarise data and build graphs outlining market activity
- Exclusive whitepapers, supplements and industry analysis curated and published by Futures & Options World
- Breaking news, daily and weekly alerts on the markets most relevant to you
