Currently, the securities industry completes settlement for trades in equities and certain debt securities on the third day after a trade is executed. The business case analysis will examine the costs and benefits of shortening the trade settlement cycle from T+3 to T+2 or T+1. The study will also examine the conditions necessary to settle trades on the trade date itself (T+0), says the DTCC.

BCG will interview or survey a cross-section of specialists, including technology and operations staff, at some 200 firms throughout the securities industry for the 18-week study, which is expected to be completed mid-September, 2012.

Previous efforts to shorten the settlement cycle in the US at the turn of the millennium came to nought, as the attacks on the Twin Towers shifted attention to post-trade risks. The issue has been resurrected following a European plan to harmonise settlement cycles on a T+2 timeframe.

Michael Bodson, DTCC's president and CEO-elect, says: "It's clear that certain risks and costs are prolonged by the time between the execution of a trade and its related settlement. Compressing that time frame should reduce those costs and risks. To determine how the industry might be able to shorten the time frame, shrink the related costs and risks and determine other benefits and impacts is the purpose of this business case study."

A recent study by trade matching utility Omgeo indicates that trade failure rates currently may be as high as 10% in the equity market and seven per cent in fixed income markets.

Custodian banks are concerned that the risk of settlement failure will increase exponentially if shorter settlement cycles are not preceded by an increase in the efficiency of the middle office, particularly in the trade matching process.

Matthew Nelson, Omgeo strategy director comments: "The world-wide shift towards shorter settlement cycles will increase the number of failed trades, unless post-trade operational practices are adapted to reduce the period between trade execution and settlement."