Industry commentary on DTCC T+1 testing

The Depository Trust & Clearing Corporation’s (DTCC’s) T+1 Industry Working Group (IWG) began the first testing cycle towards accelerated settlement in the US and Canada. Several industry experts provided written commentary on what to watch for.

Jesus Benito, head of Domestic Custody & TR Operations at SIX, wrote: “The US markets started assessing the movement from T+2 to T+1 two years ago – but now the talking ends and the testing begins. Clearly, this transition is not the same as when we moved from T+3 to T+2 as now the time pressure is much greater. However, the upcoming test cycles will be a good indicator of how prepared the industry is ahead of next year. Either way, the industry has plenty of solutions available to get there – and this is the perfect time to begin stress testing.”

Alex Knight, head of sales and EMEA for Baton Systems, wrote: “While the full switchover is not until next May, this testing deadline brings T+1 operational preparations into sharp focus. Due to the need to have dollars available to settle trades of US securities, T+1 will undoubtedly be changing the way that many firms approach their FX execution and settlement.

“For starters, it will lead to a situation where an increased proportion of trades are going to need to be settled outside of CLS, which will result in heightened settlement risk if not appropriately addressed. When also considering the fact that there is going to be less time to remediate breaks in a condensed settlement window, firms have to integrate alternative and highly automated forms of PvP FX settlement into their post-trade processes to ensure effective and safe settlement after the T+1 deadline.”

James Pike, head of Business Development at Taskize, wrote: “These testing cycles will reveal any cracks in preparation work that need to be addressed ahead of May 2024. Take one of the key early-stage components of T+1 prep – comparing settlement details to ensure that they meet the terms of the transaction.

“Changes to trade matching processes, including much tighter deadlines for the receipt of an asset managers trade instructions, not to mention the resolution of pre-trade problems, are of paramount importance. Pre-matching of trades is one of the biggest obstacles to achieving T+1 settlement. Without this, trades cannot move into the shortened settlement cycle and will likely miss the continuous net settlement process.”

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