A new report from SIFMA, ICI and DTCC, Accelerating the U.S. Securities Settlement Cycle to T+1, provides firms with a roadmap for shortening the settlement cycle, including considerations, recommendations, and next steps for moving to T+1 in the first half of 2024.

^source:DTCC

Following the February 2021 DTCC whitepaper outlining the need and approach for moving to T+1, the industry engaged Deloitte & Touche LLP to lead working group sessions with more than 800 participants from 160 organizations, including buy-side and sell-side firms, custodians, vendors and clearinghouses. An Industry Steering Committee oversaw the process and report.

"From our on-going conversations with market participants and stakeholders, we're in broad agreement on shortening the settlement cycle to T+1 to deliver significant capital efficiencies and risk mitigation benefits to the entire industry,125 said DTCC President and CEO Michael Bodson. "We look forward to continuing to work closely with the industry on this important initiative to modernize market structure, as we did during the move from T+3 to T+2 in 2017, to increase the overall efficiency of the securities markets and remove costs and risks.125

According to the report, implementing T+1 in the first half of 2024 will allow enough time for firms to assess the changes they need to undertake, for the industry to conduct comprehensive testing, and for regulators to make the necessary regulatory changes.

"Shifting to T+1 will strengthen the financial system and offers tangible benefits to investors by reducing their risk exposure and enabling them to more quickly leverage investment opportunities,125 said ICI President and CEO Eric J. Pan. "Regulated funds are a primary source for daily trading transactions, occupying a prominent place at the intersection of trading and settlement. This report provides a roadmap to help funds and their investors realize the benefits of moving to T+1, and we look forward to working with our members and the SEC on implementing the recommendations.125

While the paper confirms that the industry achieved consensus around T+1, it also indicated that further shortening the settlement cycle is not feasible in the short term. The report explains that moving beyond T+1 would require an extensive overhaul of current-day clearance and settlement infrastructure, changes to business models, revisions to regulatory frameworks, and potentially the implementation of real-time currency movements.

"As we saw during the industry move from T+3 to T+2, shortening the settlement cycle requires a collaborative effort from market participants across the industry, and the development of this report is a key step in making the vision of accelerated settlement a reality,125 said SIFMA President and CEO Kenneth E. Bentsen, Jr. "We thank the industry representatives who participated in hundreds of hours of daily, remote working sessions to help us evaluate potential risks, understand the impacts, and develop a sound approach for implementation.125

As next steps, the Industry Steering Committee recommends that firms begin to work with their counterparties, custodians, vendors, regulators, and clients to better understand internal impacts related to timing requirements and deadlines, system requirements and improvements, and process changes. Firms are also encouraged to continue to engage with the Industry Steering Committee as the initiative progresses.

Deutsche Börse's post-trade services provider Clearstream has launched a new sustainability service for fund distributors, in collaboration with Clarity AI.

Clearstream Fund Centre's fund distributor clients will be provided with detailed insights into sustainability characteristics of investment funds via the Fund Compass application.

The new service will include three main features.

Firstly, the service will filter the fund search functionality based on a set of sustainability scores to match sustainability preferences respectively.

Secondly, the service will compare and benchmark more than 72,000 share classes according to sustainability scores.

Lastly, the service will provide in-depth insights into additional criteria, such as environmental, social and governance (ESG), climate, United Nations sustainability development goals (UN SDGs), as well as exposure and impact highlights at share class level.

"Fair, reliable and transparent markets are at the core of the transformation towards more sustainable economies,125 said Bernard Tancré, head of investment fund services product at Clearstream.

"As a leading fund service provider and distribution platform, we are committed to actively drive this transition. Together with Clarity AI, we give distributors – and investors – effective means to base their investment decisions on high-quality, comprehensive and comparable ESG criteria.125

Deutsche Bank has launched an updated version of its Central Securities Depositories Regulation (CSDR) settlement discipline regime solution.

The toolkit aims to help clients and market participants, particularly investors and central securities depositories (CSDs), with their final preparations for CSDR's Settlement Discipline Regime (SDR) on 1 February 2022.

The toolkit provides an updated overview of the CSDR, with explanations and examples of how regulatory procedures can be expected to play out in practice, including example scenarios and sample penalty fee calculations. It also offers suggestions on how to respond to the latest requirements, such as cash penalties which will have repercussions across both the trade and post-trade industries.

The German bank recommends that an overhaul of market participants125 front-to-back operational processes, communication and escalation is imperative, ridding the industry of any outdated legacy systems.

Static data should be reviewed by market participants, with a focus on straight-through processing, Deutsche Bank adds.

Deutsche Bank also recommends that market participants review their key operating procedures and key performance indicators.

The CSDR is being implemented by the European Commission to improve the safety and efficiency of securities settlement in the European Economic Area (EEA) with various procedures put in place to prevent and address failures in the settlement of securities transactions.

Paul Maley, global head of securities services and regional head of Corporate Bank UK and Ireland, Deutsche Bank, says: "Much is at stake for the securities industry if we are to collectively improve efficiency in securities trade through to post-trade and to help protect and promote the European capital markets, which will be critical to the post-COVID recovery.125

Emma Johnson, director, market advocacy, securities services Europe, Deutsche Bank, adds: "With so much to do, and so little time to do it, now is the time for the industry to dig deep to cross the finish line.125

She adds: "Market participants will need to carry out an overhaul of their front-to-back operational, communication and escalation processes, while gaining a complete end-to-end understanding of the regulation and how it impacts business and operational processes.125