Five key points on the T+1 settlement transition
On December 1st, the Securities Industry and Financial Markets Association (SIFMA), Investment Company Institute (ICI), and Depository Trust & Clearing Corporation (DTCC) released a report detailing recommendations for accelerating the settlement cycle from trade date plus two days (T+2) to trade date plus one day (T+1). The industry transitioned from T+3 to T+2 in 2017 and the report recommends shortening the settlement timeframe to increase the overall efficiency of the securities market through reduced settlement risk and liquidity requirements. It also discusses further accelerating to T+0 and concludes that this would not be possible in the near future as it would require significant modifications to the infrastructure and regulatory framework of financial markets.
The report was developed from the work of an Industry Steering Committee (ISC) and Industry Working Group (IWG) that were formed following a February 2021 whitepaper on T+1 from the DTCC. The ISC produced the report’s recommendations for enabling accelerated settlement, including expediting allocations and affirmations, encouraging e-delivery of trade documentation, increasing efficiency of communication around corporate actions, amending prime brokerage notification requirements, streamlining the recall of loaned securities, and a number of other rule and practice changes. A number of the recommended changes would need to be adopted by the SEC, and its Chair Gary Gensler recently said that he has asked SEC staff to draft a proposal on shortening the settlement cycle.
With this indication that the SEC is planning on making the necessary regulatory changes, T+1 is not a matter of if, but when. Accordingly, impacted firms should take the following steps:
- Make a plan.
- Automate trade date activities.
- Assess capital and liquidity impact.
- Proactively engage with clients.
- Consider long-sighted technology updates.
First take
A publication of PwC's financial services regulatory practice
