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What's in a Day? Navigating a move to T+1 Settlement
Earlier this year, the Depository Trust & Clearing Corporation (DTCC) proposed a plan for shortening the settlement cycle for U.S. equities from two business days after the trade is executed (T+2) to one business day (T+1).1 Joining DTCC in support of this effort are the Investment Company Institute (ICI) and the Securities Industry and Financial Markets Association (SIFMA). Under the proposed roadmap, the transition to T+1 would occur by 2023.2
The goal of reducing the time between trade and settlement is to reduce risk and improve capital efficiency while maintaining the benefits of the current market infrastructure – in particular, preserving the netting function currently performed by the National Securities Clearing Corporation (NSCC). DTCC has been working to improve settlement efficiencies for some time through its Integrated Settlement model,3 and this effort is part of a trend that began with the move from T+5 to T+3 in the early 1990s. The most recent change to the settlement cycle was the 2017 migration from T+3 to T+2.
The goal of this Point of View is to offer a high-level perspective on the types of operational updates or transition risks that market participations may need to manage. A full background of this initiative or discussion of applicable regulations is beyond the scope of this paper.
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