Re: Accelerating the Securities Settlement Cycle to T+1 in the United States
Challenges of T+1 Settlement
Through the workshops, the industry has identified several areas that necessitate changes in the move to T+1. Some of these areas require more extensive changes because they are more affected by the reduction of 24 hours from the settlement cycle, while others require less extensive changes because they are more related to business practices and not as time dependent.
Some of the areas associated more closely with business practices include global settlements, documentation impacts, corporate actions, securities issuance, and impacts on coordination for mutual fund portfolio securities and investor shares.
Areas that are tied to time, and thus require more extensive changes—some procedural, some behavioral—include areas related to allocations, affirmation and disaffirmation processes, clearinghouse processing timelines, and securities lending (an area with unique structural issues related to the timelines for recalling securities that are on loan). We will also need to identify the causes of settlement errors and fails and how those can be improved through automation and behavioral changes, while ensuring that any improvements do not inadvertently increase the rate of errors and fails in a more compressed timeline. Other areas that will require extensive changes, due to both time and practices, are prime brokerage, delivery of investor documentation, foreign currency exchange (FX), global movement of securities and currency, batch cycle timing, and exchange-traded fund (ETF) creation and redemption.
Each of these problems requires extensive collaboration between stakeholders and the myriad systems used across the industry. A single transaction settlement kicks off a series of additional and necessary work to ensure information flows seamlessly across teams to update compliance reporting, customer position, performance reporting, and tax reporting, and to ensure thorough, accurate communication to investors and regulators. All these actions will become more complicated under compressed time frames. However, we are committed to addressing these challenges by working with the industry to ensure as seamless a transition to T+1 as possible.
The full letter is available at https://www.sifma.org/wp-content/uploads/2021/08/2021.08.13-T1-SEC-Gensler-Letter.pdf