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In February 2022, the SEC proposed to shorten the active two-day trade settlement cycle to a one-day cycle. This regulatory initiative will require early action and precise planning. It will be critical to make operational and technological enhancements to meet the demands of the T+1 settlement.
The security settlement cycle has greatly evolved over the past 50 years and the pace at which the industry is evolving is only accelerating. Between 1976 and 1995, the industry utilized a trade date plus a five-day settlement cycle (T+5). The industry only recently moved to reduce the trade settlement time to two days (T+2) in the fall of 2017. The immediate impact felt by T+2 spurned industry-wide discussion about the potential benefits of a T+1 accelerated settlement structure. Throughout 2021, SIFMA and the DTCC worked to analyze the future impacts of a T+1 settlement cycle, with the transition framework being laid out in December 2021. Throughout 2022, industry participants should be in a requirement gathering and impact assessment phase, by assessing their current-state capabilities and planning for any enhancements before the anticipated T+1 rollout in Q3 of 2024.
In December of 2021, SIFMA released a whitepaper outlining the need and approach for an advanced trade settlement cycle. As an industry playbook is currently in development for the implementation of T+1, it is imperative that organizations be in their Requirements Gathering phase identifying their current state and needed changes to support the T+1 timeframe, as extensive testing will be conducted in 2023 with a proposed go-live date of Q3 2024.
Process improvement and automation, aided by technology, will play a significant role in helping member firms achieve compliance with the proposed accelerated settlement cycle. The transition to T+1 will require firms to evaluate not only all internal processes and system capabilities, but also those activities aided by third-party vendors and service providers.
Sia Partners has been proactively anticipating the pending shift to T+1 trade settlement and can work to build an effective framework for our clients. We have extensive experience leading large-scale Business, Technology, and Regulatory transformational projects across the Financial Services Industry. Additionally, Sia Partners has helped our clients meet the demands of similar trade acceleration initiatives - designing a comprehensive and effective game plan, identifying impacted areas, enhancing processes, and providing technology solutions. We welcome the opportunity to partner with you on major strategic and operational initiatives, providing a variety of solutions to meet all your business needs.
Read more on the T+1 settlement here: T+1 Accelerated Settlement: Key Factors and Next Steps for Adoption & T+1 Accelerated Settlement: DTCC Proposal.