A financial industry consortium recently announced a timeline for a proposed move to a two-day settlement cycle by the third quarter of 2017. The change would apply to equities, corporate bonds, municipal bonds, unit investment trusts, and related instruments. The group expects that shortening the standard settlement cycle in the United States from three days to two will lead to “reduced counterparty risk, decreased clearing capital requirements, reduced pro-cyclical margin and liquidity demands, and increased global settlement harmonization.” The release notes that several other jurisdictions already utilize a T+2 timeline, including the European Union and Hong Kong.
The consortium includes DTCC, which kicked off the initiative by requesting a study in 2012 regarding the impact of shortening the settlement cycle. That study found that a T+2 settlement cycle would offer “significant risk reduction” and require “considerable, yet manageable investments” to complete. Shorter settlement cycles would require “significantly more complex and costly, requiring end-to-end process redesign and substantial technology investments and enhancements to support near real-time processing capabilities, and necessitating an extended migration timeline.”
The proposed timeline foresees regulatory support for the initiative by the third quarter of this year and a rule proposal by the fourth quarter. Final rule passage is projected to occur in the second quarter of 2016. The group hopes that regulators responding to the timeline will provide a level of certainty to industry participants so that preparations and testing can proceed. Commissioners Kara Stein and Michael Piwowar released a statement regarding the timeline indicating that they “look forward to working with our fellow Commissioners and the staff, as well as partnering with market participants to shorten the settlement cycle as soon as possible.”