Industry-wide testing of a two-day (T+2) settlement cycle
for stocks and bonds kicked off in the US on Monday.
Major bourses, banks, vendors and clearing houses started to
funnel test trades through to the
DTCC’s equities clearing
corporation settlement arm NSCC at the start of
Bats, Nasdaq and OCC are among those involved.
The trials mark the start of a crucial six-month window
which will determine whether the US meets its September
T+2 essentially means settlement occurs over 48 hours as
opposed to the current 72 hour period in place across the US
Advocates expect the shorter cycle to improve operational
efficiencies, reduce counterparty risk and also align the US
cycle with markets across the globe.
Europe made the switch to T+2 in 2014. Most of the other
large markets in Asia, barring Japan and Singapore, have been
operating on a T+2 cycle for a number of years.
The last time the US shortened its settlement cycle was in
1995, when it changed from T+5 to T+3.
"Real trades are now running through a test environment,"
John Abel, executive director of settlement and asset servicing
strategy at DTCC, told Global Investor/ISF.
"Baring anything unforeseen, the September
5th date looks very promising for US market
"We also expect the SEC to publish final rule set confirming
the deadline in the very near future."
Abel is currently responsible for leading DTCC's initiative
to move to the T+2 settlement cycle in the US – the
largest capital market in the world.
The switch has been industry driven on this side of the
Atlantic, as opposed to regulatory driven approach taken in
Europe three years ago.
Nearly all financial market participants are impacted by the
change requires firms to look closely at their asset servicing
and trade processing arrangements.
Abel adds that securities lending participants may have less
time to recall securities on loan and borrowers may have to be
cognizant of the reduced timeframe when processing security
"Stock loan has been in focus recently when it comes to T+2,
it’s worth firms taking a look at their securities
lending documentation and the stock loan recall period," Abel
Service providers are also having to update their products
and services to accurately process trades on a T+2 basis.