The Depository Trust and Clearing Corporation (DTCC) has set out plans to further speed up post-trade processes for the US equities market, following its transition to a T+2 settlement cycle last year.
Its proposal seeks to mitigate risks surrounding time in the settlement system by accelerating time-to-settlement and settlement optimisation.
“By optimising settlement and accelerating settlement beyond T+2, firms will be able to significantly reduce capital requirements, systemic risk and operational costs while preserving the resiliency of the current infrastructure,” said Murray Pozmanter, head of clearing agency services, DTCC.
“This represents an important step toward leveraging the gains we have seen with T+2 to achieve even greater efficiencies for the industry.”
Decreasing the time from execution to settlement has, in the past, been carried out reducing the number of calendar days required to do so.
However, further reducing settlement from T+2 to T+1 would require changes that are significantly more complex and costly, requiring end-to-end process redesign and substantial technology investments.
To meet this challenge, DTCC has instead proposed to move settlement of eligible equity transactions at its subsidiary, National Securities Clearing Corporation (NSCC), from the afternoon of settlement date to the morning before market open, removing an entire market day of settlement exposure without eliminating a calendar day.
“We believe this approach can be implemented sooner, with less disruption than traditional calendar day reductions in the settlement cycle,” Pozmanter added.
“To the extent that DTCC can take a market day out of settlement with optimisation, members should realise a reduction in capital requirements in their NSCC clearing fund obligations.”