With less than four months until the US moves to a T+1 settlement cycle, DTCC issued a report, “Hitting 90% Affirmation by 9:00 PM ET on Trade Date: The Key to T+1 Success”. The report encourages market participants to automate their post-trade operations to have adequate time to allocate, confirm and affirm at least 90% of their transactions by 9:00 PM ET on trade date, a critical step for firms and the industry in achieving T+1 settlement.
Under today’s T+2 timeline, approximately 90% of all trades are affirmed by 11:30 AM ET on T+1, the current affirmation cutoff. To maintain existing levels of settlement efficiency, the industry should affirm at least 90% of all trades by the 9:00 PM ET cut-off on trade date. For this to occur, trade allocations should be completed by 7:00 PM ET on trade date, leaving two hours for the confirmation and affirmation process to take place. In December 2023, 69% of all trades were affirmed by 9:00 PM ET on trade date.
“We are pleased to present the industry with this report, outlining affirmation cut-off times and providing recommendations so firms can be best positioned to meet T+1 settlement cycle requirements,” said Val Wotton, managing director and general manager of DTCC Institutional Trade Processing. “As market participants prepare for the compressed timeframe, DTCC continues to work with and support the industry to ensure a smooth transition to the accelerated settlement cycle.”
US affirmation process
In institutional trading in the US, brokers confirm trades leveraging TradeSuite ID, which automates electronic trade detail distribution between counterparties. Investment managers, or their agents (such as custodians or prime brokers), then affirm the details of the trade. At that time, the central matching service provider (CMSP) then sends the affirmed confirmation to the depository for settlement. The clearing agents check positions and credit for both parties, and then settle the trade.
Institutional trades settled bilaterally through DTC can achieve higher affirmation rates more efficiently by:
- Ensuring market participants understand best practices of using a TradeSuite ID omnibus account number
- Encouraging investment managers to obtain their own TradeSuite ID number
- Examining the pros and cons of first, having custodian counterparties affirm, second, self-affirming or third, leveraging a central matching solution with auto affirmation capabilities such as DTCC CTM’s Match to Instruct (M2i) workflow
Accelerating the settlement timeline will benefit the industry by mitigating risk and cost while improving efficiencies. Regardless of individual market participant roles, collaboration will be critical for the industry to achieve the 90% affirmation rate by 9:00 PM ET on trade date to be ready for the US shift to T+1.