Frequently Asked Questions
DTCC believes that the time is right to explore a new approach to post-trade processing. Whether that new approach is the adoption of new emerging technologies, or the development of creative new business processes, DTCC believes we can create cost and balance sheet efficiencies for our clients and solidify the U.S. markets as the deepest, broadest and most efficient markets in the world.
A: Real-time settlement is a simple technical solution but a very complicated market structure change. While the industry should continue to aspire to real-time, it is more pragmatic to reduce the settlement cycle in stages to capture the benefits faster. With real-time settlement in today’s market structure, the entire industry – clients, brokers, investors – loses the liquidity and risk-mitigating benefit of netting, and that is particularly critical during times of heightened volatility and volume. For example, on a typical trading day, NSCC processes an average of about $1.7 trillion in equities transactions. The multilateral netting process reduces that number by about 98%, and the total value settled is around $38 billion. Netting allows brokerages to transfer that $38 billion between parties only once at the end of the day. In a real-time settlement scenario, netting is not possible and trillions of dollars in cash and securities must move through the financial system on a continual basis throughout the trading day. This creates massive market and capital inefficiencies, increases credit and operational risks, and increases costs between trading parties, possibly undermining the stability of the markets.
Accelerating settlement requires careful consideration, industry coordination, and a balanced approach so settlement can be achieved as close to the trade as possible (for example, T+1 or T+½), without creating capital inefficiencies and introducing new, unintended market risks, such as eliminating the enormous benefits and cost savings of multilateral netting.
A:DTCC is prepared to move quickly to lead the industry to accelerate the settlement cycle to T+1 and beyond. NSCC and DTC already support T+1 and even some same-day settlement using existing technology, though many market participants do not use this option due to market structure complexities, legacy business and operational processes. Many don’t realize, DTC has always been a T+0 settlement platform ever since its inception in 1973 -- even when the industry settled at T+5, T+3 and now T+2.
As we describe in the paper, in our discussions with the industry, many firms appear ready to start revising their processes to accelerate settlement. They realize it’s in their best interest: shortened settlement times reduce market risk and margin requirements, which would allow firms to use those resources in other ways.
Equity clearing and settlement is part of a much larger ecosystem of linked financial markets. Accelerating the settlement cycle would have upstream and downstream impacts on other parts of the market structure, including derivatives, securities lending, cash borrowing, foreign exchange and collateral processing, and developing a new accelerated settlement system could fundamentally change current market structure. In order to move to T+1, industry participants must align and implement the necessary operational and business changes, and regulators must be engaged .
Why T+1?
Impact on Processing Schedules
Corporate Actions
New Issues / IPOs
Non-U.S. Markets and Clients
Preparing, Testing and Timing
A: DTCC is uniquely positioned to provide insights that tap into the breadth and depth of our experience. With impactful front-to-back consulting, DTCC can leverage our industry relationships and ability to offer a seamless and positive client experience. For more information about DTCC consulting services, please visit: http://fp13c.goudounet.com/consulting.
DTCC has started the process of identifying the required changes that will be needed to help our clients and the industry as a whole as we transition to a T1 settlement cycle. These changes have been published in the T1 Executive Summary Paper which can be found at UST1.ORG.
We have dedicated teams looking at the required changes and their impact to DTCC’s overall ecosystem and its impact to our clients. Teams have been assembled to start the development work on the identified changes and we will utilize an Agile methodology to implement them.
As far as testing, DTCC is working on a T1 High Level Testing Document -- as we did in the move from T3 to T2 -- that will be presented to the industry ~ Q3 or Q4 of 2022 (subject to change) depending on the final date that is chosen for the move to a T1 settlement cycle. We will distribute this in conjunction with our colleagues at SIFMA and ICI. From there, we will again -- through the Industry Working Group -- have dedicated sessions regarding a DTCC Detailed T1 Testing Document that we are preparing but will require industry input to complete. The timing on that, again, is subject to a final date being chosen for implementation and is still to be determined.
Industry Working Groups & the T+1 Playbook
A: As we have done for the past year and a half, we utilize the SIFMA, DTCC, and ICI-led working ISC and IWG groups to continue to work with the industry on open issues, timelines, regulatory issues, testing information, hosting Zoom/Webinars to ensure that the industry is engaged at every step as we make the march to the implementation of a T1 settlement cycle.
In regard to the T1 Implementation Playbook, SIFMA, ICI, DTCC and Deloitte are working together to produce the playbook and have it available for industry consumption sometime in June-Aug 2022 timeframe (subject to change). It will have the same feel of the playbook that was created when the industry moved from T3 to T2.
Firms should keep an eye on the UST1.ORG website for updates. Please visit UST1.org for all industry documentation, announcements and working papers.
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