Big settlement improvements coming in 2013


Talk of better clearing and settling processes cropped up again in 2012, and will likely get louder in 2013.

Non-cash equities markets seem to be setting the pace. Credit derivatives clearing will move to a T+0 settlement cycle once the new Dodd-Frank-mandated clearing companies are in place. At the same time, the equities market seems to be demanding an upgrade, and the DTCC appears bent on delivering some improvements, announcing major plans recently.

The issue has been less about giving up T+3 and more about going to either T+1 or T+2. The market seems bent on such improvements mainly for risk management purposes.

"So what's the downside of junking T+3 and going to a T+2 or a T+1 rule?" asks Iss

"The trading industry must make new technology investments. These will include standardized communications as well as standardized cross industry settlements. These measures would improve the accuracy of settlement instructions, the study said. Trade-date matching will also be needed, and regulators will have to mandate better settlement standards for institutional trades, according to the study. Another objection might be the industry costs. They range from the hundreds of millions of dollars for T+2 to more than a billion dollars for T+1. The individual cost per firm depends on the size and kind of the institution. Moving to a T+2 environment would require about $550 million. Upgrading systems and processes that support a T+1 standard would cost some $1.7 billion, BCG estimates."

In the end, I think t+2 is the most likely scenario, which might put the U.S. markets off the global leading edge.

For more:
- here's the article
- here's a look at the DTCC's plans