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DTCC Suggests Policies to Modernize Equities Market Structure

Traders Magazine Online News, January 26, 2018

John D'Antona Jr.

The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry, announced its vision for the evolution of the U.S. equities market structure, unveiling a series of proposals to provide seamless access to new shortened settlement processing options, both pre-and post-trade.

Following the successful transition from trade date-plus-three days (T+3) to trade date-plus-two days (T+2) settlement last year, one of the last remaining exposures in the settlement system today is time. Time increases the risk of an unpredictable event that could significantly affect the transfer of cash or ownership of securities from the point of execution through settlement.

DTCC proposes to mitigate this time risk through actions including accelerated time to settlement and settlement optimization. Both would enable clients to further improve and speed workflows, optimize capital and lower risk, reducing settlement processing inefficiencies through automation.

The proposals build on existing DTCC capabilities while improving straight-through-processing. DTCC will partner with its clients and with regulatory supervisors to further develop these proposals, which will be subject to these discussions and to any required regulatory approvals.

“By optimizing settlement and accelerating settlement beyond T+2, firms will be able to significantly reduce capital requirements, systemic risk and operational costs while preserving the resiliency of the current infrastructure,” said Murray Pozmanter, DTCC Managing Director and Head of Clearing Agency Services. “This represents an important step toward leveraging the gains we have seen with T+2 to achieve even greater efficiencies for the industry.”

Traditionally, decreasing the time between trade and settlement has been achieved by reducing the number of full calendar days required while leveraging existing processes, as we saw in last year’s move to T+2. To address process opportunities, DTCC is also proposing to move settlement of eligible equity trades at its subsidiary, National Securities Clearing Corporation (NSCC), from the afternoon of settlement date to the morning before market open, removing an entire market day of settlement exposure without eliminating a calendar day.

“We believe this approach can be implemented sooner, with less disruption than traditional calendar day reductions in the settlement cycle,” Pozmanter added. “To the extent that DTCC can take a market day out of settlement with optimization, members should realize a reduction in capital requirements in their NSCC clearing fund obligations.”

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