Michael Bodson, DTCC

Summary List Placement

In the world of one-click purchasing, instant payments, and two-hour delivery, many investors find it counterintuitive that securities trades in the US can take two business days to complete or settle, known as the T+2 settlement cycle.

Given the pandemic-related market volatility in March 2020, and other occasions since then, market participants are looking for ways to increase efficiency, reduce risks and lower costs in the equities settlement cycle. The answer is to shorten the settlement cycle. 

But questions remain: How fast should the settlement cycle be and how quickly can we, as an industry, get there? 

DTCC believes the right timeframe for the equities settlement cycle at this time is T+1.

This would deliver significant benefits to the markets and investors by lowering margin requirements, improving capital liquidity, and reducing risk, while maintaining the efficiencies, resilience, and soundness that makes our capital markets the deepest, most efficient, and liquid in the world.  

T+1 will reduce risk and lower margin requirements

Under the T+2 settlement cycle, risk is spread over two full business days. To reduce this risk, clearinghouses —which are responsible for clearing and settling trades — guarantee the completion of trading activity.

This trade guarantee operates like an insurance policy, with the clearing …read more


Source:: Businessinsider – Finance

      

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