The FDIC issued a guidance document for businesses ahead of the change of regular settlement cycle from T+3 to T+2 for many US securities including equities, corporate bonds, unit investment trusts—and financial instruments composed of these products—when these securities are traded on the secondary market. The change comes into effect September 5.
These rule changes, made in conjunction with a multi-year securities industry initiative to shorten the settlement cycle, are intended to reduce counterparty risk, lower margin requirements for clearing agency members, reduce procyclical margin and liquidity demands during periods of market volatility, and better align the US securities transaction settlement requirements with other markets across the globe. Industry participants have been developing and testing the necessary changes to processes and systems to implement this industry-wide change. These changes to the securities trading clearance and settlement process and, indirectly, to income processing, corporate action processing, securities lending, and other related processes significantly affect a broad range of market participants and services.
Preparation includes identifying all lines of business, products, and activities that involve securities settlement and servicing. Institution management should also monitor regulatory changes that affect securities settlement and servicing, system and process changes at financial market utilities, custodians’ system and process changes, and third-party system or service provider changes. Based on the nature and scope of the institution’s securities processing activities, management should determine what system and process changes or outreach may be needed for a smooth transition to T+2. Institution management should establish and follow an appropriate project plan for implementation.