The Depository Trust and Clearing Corporation (DTCC) is stepping up its efforts to shift the US capital markets industry to a T+2 settlement life-cycle.
Currently, the US securities industry completes settlement for trades in equities, corporate and municipal bonds and unit investment trust trades on the third day after a trade is executed (T+3).
European markets are moving to T+2 for these securities, and much of Asia is already on a T+2 settlement cycle.
As long ago as 2001 the US industry was examining a move to a T+1 settlement cycle as a way of reducing credit and liquidity risks. The plans were ditched but momentum behind a shortened cycle picked up again in the wake of the 2008 economic crisis.
In 2012 the DTCC and Securities Industry and Financial Markets Association (Sifma) called in Boston Consulting Group to examine the business case for a change. The management consultancy concluded that same day settlement (T+0) is not feasible but that moving to T+1 or T+2 could prove worthwhile returns on their investment.
This year Sifma, the Investment Company Institute, the Association of Global Custodians (AGC) and the Association of Institutional Investors all voiced support for the T+2 option, which is considerably cheaper than T+1.
The DTCC has now definitively thrown its weight behind the plan, arguing that a shortened settlement cycle will mitigate risk for all industry participants - including the individual investor.
Michael Bodson, president and CEO, DTCC, says: "As the industry is focused on mitigating operational and systemic risk and protecting the integrity of the US financial system, DTCC supports this critical step that will create greater certainty, safety and soundness in the capital markets."
Patrick Kirby, COO, corporate and investment bank operations, JP Morgan adds: "Both institutional and retail investors who trade with and through us benefit from the reduction in settlement time. This is a very significant step in making the industry safer and more reliable."
The next stage of the process will see the creation of a steering committee and working parties as the approach and timeline for implementation are hammered out.