The Case for Moving to T+1 Settlement in the U.S.
The case for moving to T+1 settlement for the U.S. financial services industry is strong and is based upon several factors. The move from T+3 to T+1 will dramatically reduce the settlement risk exposure of the U.S. securities industry.
SIFMA is the product of a merger between the Securities Industry Association (SIA) and The Bond Market Association (TBMA) in 2006.
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Executive Summary
Case for Change
The case for moving to T+1 settlement for the U.S. financial services industry is strong and is based upon several factors. First, the move from T+3 to T+1 will dramatically reduce the settlement risk exposure of the U.S. securities industry. Second, it will enable the U.S. market to continue to maintain its global competitiveness by serving as the catalyst for enhancing the current post-trade processing and settlement process. The changes will result in a significant economic benefit to the industry. Third, the move to T+1 serves the interest of the U.S. investor by synchronizing the clearance and settlement process across asset classes, and enabling more fungible, flexible trading and investing. Finally, improving current trade process activities will make it possible for the U.S. market to support increased volumes.
T+1 can be realized in three and one-half years of elapsed time. Assuming a start in the fourth quarter of 2000, T+1 could be realized by June 2004. While all industry participants must take action to start implementation of the building blocks there are three steps that the industry must take immediately: assure the participation of asset managers and other buy-side firms, enable development of new matching utilities and begin the rewrite of the DTCC’s continuous net settlement process.
T+1 Vision
T+1 aligns the efficiency of the clearing and settlement process with the efficiency and effectiveness customers have come to expect from the front-end of the trade process. T+1 delivers this efficiency while preserving the benefits of netting. Four key features characterize the T+1 environment:
Seamless communication among parties. T+1 will enable trade participants, exchanges, DTCC and industry infrastructure providers to communicate electronically. Multiple service providers will be linked in a seamless and cost effective manner. The industry will adopt interoperability guidelines that will direct the commercial, operational and legal relationships between service providers. These guidelines will include standard codes of practice and standard communication protocols.
Significant real-time processing, less batch processing. T+1 requires all parties to streamline and implement significant real-time or near-real-time processing to meet the compressed settlement timeframe. Industry utilities will create a “onestop shop” for matching and transaction consolidation. Firms will reduce their reliance on manual processes. The utilities will offer value-added services that firms can leverage.
Virtual, not physical, processing. For retail firms, the use of checks and physical securities will be greatly reduced.
Concurrent, not sequential, exchange of information. Many of the steps in the transaction processing cycle will occur simultaneously rather than sequentially.