US reduces trade settlement timeframe
Written by Chris Lemmon
The Depository Trust & Clearing Corporation (DTCC), Investment Company Institute (ICI) and the Securities Industry and Financial Markets Association (SIFMA) have overseen the transition from three days to two days for the standard settlement timeframe of trades.
Such trades include in-scope securities, including U.S. equity, corporate and municipal bond, and unit investment trust trades.
This move is expected to provide benefits to the financial market, including reduced market and counterparty risk, increased financial stability and improved safety and efficiency for investors and market participants.
The shorter settlement timeframe also aligns the US with other major markets globally that use two day settlement.
DTCC estimates the lower levels of risk associated with a shorter settlement cycle will reduce the average daily capital requirements for clearing trades through DTCC's National Securities Clearing Corporation (NSCC) by approximately 25 per cent, or $1.36 billion.
Murray Pozmanter, head of clearing agency services and global operations and client services at DTCC, said: “The US move to a T+2 settlement cycle marks the most significant change to the market’s settlement cycle in over 20 years. A collaborative industry-driven effort with strong support from regulators, the T+2 initiative has achieved its common goal, which will ultimately further reduce risks and costs for the benefit of the investors and market participants.”