T+2 shortened settlement cycle update

Major milestones are closer than you think

​Ready or not, the migration to a shortened settlement cycle (T+2) is fast approaching. The development and implementation of modified systems and processes should be completed by Q3 2016. Between now and then, myriad activities need to be done that will require significant changes to a broad range of business areas, from trade processing, asset servicing and documentation, to regulatory compliance and reporting, testing, and migration.

Are you on track?

In our work with organizations across the financial services industry, we currently see a wide range of preparation and readiness levels. Some leaders have already defined their organization’s business requirements and started working with vendors, while others have not yet established a project team or obtained funding. To see where your organization stands, ask yourself these key questions:

  • Do you know which functional areas, processes, and supporting documentation will be affected?
  • Have you assessed the cross-functional impact and key dependencies?
  • Has your team inventoried the systems that will need to be modified?
  • Do you have a budget for these activities?
  • Have you created a plan?

Unless you can answer “yes” to all these questions, you probably need to pick up the pace in preparing for T+2. Lagging behind could have significant consequences for your organization’s reputation and financial performance, including trades that fail because they cannot be settled within the required timeframe.

Getting in front of the curve

The Securities and Exchange Commission (SEC) has indicated support for the planned transition and expects to issue preliminary proposed rules on T+2 by Q2 2016. In the meantime, other regulators (e.g., Office of the Comptroller of the Currency, Financial Industry Regulatory Authority, Federal Deposit Insurance Corporation, and self-regulatory organizations) have already submitted notifications of proposed rule changes to the SEC. 

The transition to T+2 will affect every financial services provider involved in the trade life cycle, including asset managers, broker-dealers, issuers, transfer agents, vendors, and clearing firms.

The T+2 playbook also outlines the key activities and milestones required for a successful migration. While the migration date is currently more than a year down the road, much of the time between now and then is required for extensive internal, external, third-party, and overall industry testing.

Six steps that should already be done

Here is a closer look at the migration steps that your T+2 team should have already completed, some of which involve initial coordination with external parties such as customers, system vendors, and major counterparties.

Step 1: Establish governance structure

Step 2: Initiate project

Step 3: Inventory scope

Step 4: Conduct impact assessment

Step 5: Create book of work

Step 6: Design solutions

Organizations that are on track with the T+2 playbook timeline have already finished these six migration steps and are actively involved in seventh step tasks: coordinating changes with internal and external stakeholders, and scheduling migration activities.

Falling forward

​The shift to T+2 is something every affected organization needs to do, and the SEC has strongly indicated its intent to “fall forward”; moving ahead as scheduled and letting organizations that are not ready suffer the consequences and play catch-up. Developing and implementing the required operational and functional changes earlier rather than later can help you avoid a lot of heartburn and headaches and reduce the risk of having to scramble to address issues that pop up at the last minute, as they inevitably seem to do.

It can also help you avoid the reputation damage (and failed trades) that could result from missing the deadline and having to operate with settlement capabilities that lag behind those of your competitors.

Financial services executives should monitor future guidance from the Industry Steering Committee and track expected changes to regulatory requirements. Regulators have already started taking concrete steps to make T+2 a reality. In particular, rule changes have been submitted by self-regulatory organizations (SROs), and the SEC has affirmed its plan to take the initiative on regulatory changes. However, executives that wait for formal rule approval before taking action could find their organization far behind the competition and will likely struggle to be ready for industry testing in Q2 2017.

How Deloitte can support your T+2 implementation

​Numerous leaders across the financial services industry have engaged Deloitte to assist with their organization’s T+2 initiatives. Our deep knowledge of the T+2 playbook approach—combined with our advanced tools and in-depth understanding of cross-functional impacts—can help accelerate implementation and migration. Also, our approach to testing and our ability to manage and sequence complex dependencies reduces implementation risk and lays a strong foundation for success.

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