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June 3, 2013

Going to T+1 Possibly on the Horizon

By Editorial Staff

The clearing industry's move to speed up the settlement cycle would "reduce systemic risk and the risk of failure of institutional trades on the buyside," said eClerx's Alan Paris.

Industry utility the Depository Trust & Clearing Corp., announcing the results of a recent poll, said the clearing industry will be ready for a T+2 cycle by 2016 and T+1 by 2020. Paris, a financial services principal at the outsourcing service provider, says brokerages, bankers and other industry players are ready for a faster settlement cycles.

"Every financial institution I talk tells that me they're ready for it," Paris said. So why, in a world in which most advanced markets are at T+2 or moving to it, hasn't the clearing business moved to a faster cycle?

A recent DTCC study found that players retain certain manual techniques. Investment bankers are ready for T+2. However, Paris said, some problems persist on the buyside. The potential problem is with asset managers and hedge funds. "They are less fully automated as far as the trade cycle is concerned."

An increased number of failed trades and other problems will likely be the result of a faster settlement cycle for these buysiders, he said. They will have "growing pains," Paris said.

The trading industry considered going to a T+2 standard more than a decade ago, but the terrorist attacks of 2001 put that on the back burner.

Paris and other industry experts also believe that the movement for a faster settlement cycle has been stymied by an emphasis on straight-through processing. Straight-through processing enables the entire trade process to be conducted electronically without any manual intervention. The concept has been used in sectors such as banking and financial planning.

DTCC members have said they were ready to go to a faster settlement cycle. DTCC, which could ask the Securities and Exchange Commission for the authority to junk the current T+3 equity settlement cycle in favor of a faster one, has conducted surveys detailing the costs and the eventual savings of a T+2 cycle. DTCC recently recommended that the U.S. move to a two-day settlement-T+2-cycle in 2016, and a T+1 cycle by 2020.


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