US regulator reignites T+1 debate

US regulator reignites T+1 debate

The Securities and Exchange Commission is inviting public comments on methods to improve the safety and operational efficiency of US trade processing, including proposals to shorten the settlement cycle to less than three days.

In a paper released late last week, the US regulator calls for comment on the benefits and costs associated with implementing a settlement cycle for most broker-dealer transactions that is shorter than three days (T+3).

Under pressure to cut costs, the US securities industry in July 2002 pulled back from plans to move to a T+1 trade processing environment; and for many, the pursuit of improved inhouse operational efficiency continues to take precedent over industry-wide projects. Aware of the sensitivities, the Commission says it is also prepared to look at alternative means to reduce risks in the system while operating in a T+3 settlement cycle.

The regulator is also pondering the introduction of new rules to require the completion of the confirmation and affirmation process on trade date (T+0) when a broker-dealer provides delivery-versus-payment or receive-versus-payment privileges to a customer. Finally, the Commission is seeking comment on reducing the use of physical securities.

The SEC's interest in the nitty gritty of back office operations was applauded by US trade body, the Securities Industry Association (SIA).

John Panchery, SIA's vice president and managing director, systems and technology, says: "The industry has been working for the past four years on initiatives critical to achieving straight-through-processing. In this effort, the SEC's role is key in implementing regulations to ensure standardisation in the processing of trades. SIA's STP Committee will review the proposal and plans to file a comment letter."

Interested parties have three months to respond to the SEC paper.

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