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Financial services industry shortens trade settlement cycle in the US

First Published 5th September 2017

Two-day settlement cycle to reduce risk and enhance U.S. market structure

Murray Pozmanter, DTCC

Murray Pozmanter, DTCC

The Depository Trust & Clearing Corporation (DTCC), Investment Company Institute (ICI) and the Securities Industry and Financial Markets Association (SIFMA), on behalf of the T+2 Industry Steering Committee (T+2 ISC), today oversaw the transition to a standard settlement timeframe of trade date plus two days (T+2) for in-scope securities, including U.S. equity, corporate and municipal bond, and unit investment trust (UIT) trades, reducing operational and systemic risks to the U.S. marketplace.

Beginning today, trades in the affected securities will settle in two business days instead of the previous three-day cycle, providing significant benefits, including reduced market and counterparty risk, increased financial stability and improved safety and efficiency for investors and market participants. The shorter settlement timeframe also aligns the U.S. with other major markets globally that use T+2 settlement, providing an increased level of global settlement harmonization across jurisdictions and regions.

DTCC estimates the lower levels of risk associated with a shorter settlement cycle will reduce the average daily capital requirements for clearing trades through DTCC's National Securities Clearing Corporation (NSCC) by approximately 25 percent, or $1.36 billion.

Murray Pozmanter, Head of Clearing Agency Services and Global Operations and Client Services at DTCC said, "The U.S. move to a T+2 settlement cycle marks the most significant change to the market's settlement cycle in over 20 years. A collaborative industry-driven effort with strong support from regulators, the T+2 initiative has achieved its common goal, which will ultimately further reduce risks and costs for the benefit of the investors and market participants."

The T+2 ISC members will host a command center from September 1st to September 8th to oversee the transition. A fact sheet on the T+2 effort is available here. The settlement cycle was last changed in 1995 from T+5 to T+3.