T+2 industry implementation playbook
Schedule, milestone, and dependencies
The settlement period for in-scope securities traded on the secondary market in the United States (US) is currently trade date plus three business days, commonly referred to as T+3. The financial services industry, in coordination with regulators, is planning to shorten the settlement cycle to trade date plus two business days (T+2) in Q3 2017.
The implementation of T+2
The settlement period for in-scope securities traded on the secondary market in the United States (US) is currently trade date plus three business days, commonly referred to as T+3. The financial services industry, in coordination with regulators, is planning to shorten the settlement cycle to trade date plus two business days (T+2) in Q3 2017. The products subject to the shortened settlement cycle include equities, corporate bonds, municipal bonds, unit investment trusts, and financial instruments comprised of these security types. Shortening the settlement cycle is expected to yield benefits for the industry and market participants including reduced credit and counterparty risk, operational process improvements, cash deployment efficiencies, increased market liquidity, lower collateral requirements, and enhanced global settlement harmonization.
The Depository Trust & Clearing Corporation (DTCC) established the Industry Steering Committee (ISC) to oversee the T+2 settlement cycle initiative. The ISC is co-chaired by the Securities Industry and Financial Markets Association (SIFMA) and Investment Company Institute (ICI). The ISC oversees the Industry Working Group (IWG), and Sub-Working Groups (SWGs). These groups were responsible for assessing the scope, requirements, and changes needed to facilitate the implementation of T+2. The information gathered by the SWGs was summarized in the June 2015 White Paper, “Shortening the Settlement Cycle: The Move to T+2” (White Paper).1
On June 18, 2015, SIFMA and ICI submitted a letter, “Shortened Settlement Cycle – Regulatory Initiatives,”2 to the Securities and Exchange Commission (SEC) requesting specific regulatory changes required for the move to the T+2 settlement cycle. SEC Chair Mary Jo White responded to SIFMA and ICI on September 16, 2015 indicating her support for the move to T+2 and requesting that the industry continue to pursue migration to a shortened settlement cycle and provide the SEC with a “detailed implementation schedule, including interim milestones and dependencies, by December 18, 2015.”3
The ISC continued to collaborate with the IWG to develop this T+2 Industry Implementation Playbook (Playbook), which provides a timeline with milestones and dependencies as requested by the SEC, as well as detailed remedial activities that impacted market participants should consider in order to prepare for migration to the T+2 settlement cycle. The implementation timelines and milestones are dependent on relevant regulators finalizing shortened settlement cycle rules in a timely fashion. There is significant risk that migration may be delayed if milestones are not met.
The Playbook consists of seven sections. The first three areas, trade processing, asset servicing, and documentation are based on requirements described in the White Paper, and the last four contain additional considerations and lay out the regulatory, future industry actions, and testing and migration roadmap for the move to T+2.