NEW YORK--()--The Depository Trust & Clearing Corporation (DTCC) today announced plans to strengthen intraday settlement finality in the United States financial markets by proposing the implementation of major structural changes in the settlement of equities, corporate debt and municipal debt securities over the next five years.
“In addition to promoting intraday settlement finality and reducing systemic credit and liquidity risk, these initiatives will align DTC with internationally-established best practices, promote straight-through processing and better position DTC for a shorter settlement cycle, if and when recommended.”
In a white paper to the industry titled “A Roadmap for Promoting Intraday Settlement Finality in the U.S. Markets,” DTCC, through its depository, The Depository Trust Company (DTC), said it would make major, multi-year enhancements that “represent DTC’s vision for the future of settlement finality and risk reduction” in the financial services industry.
While “DTC continuously monitors and reviews its settlement processes and makes adjustments as needed…DTC’s recent efforts to further reduce systemic risk…have identified a number of significant enhancements to the U.S. settlement process that will further improve the safety and soundness of the system for years to come, while at the same time aligning its settlement system more closely with global standards,” the paper states. Many of these enhancements are the subject of ongoing discussions with participants and regulators.
The paper offers a “settlement roadmap that will provide a high-level overview of the planned upcoming system enhancements and a proposed implementation timeline for each enhancement.” The proposed enhancements will be made in four key areas:
- Settlement Matching provides DTC customers the ability to authorize or match transactions prior to DTC attempting to process these transactions. This will eliminate the need for reclamation transactions or “reclaims”, enhance intraday settlement finality, promote settlement certainty and help eliminate credit and liquidity risk.
- CNS for Value will improve the way transactions from National Securities Clearing Corporation’s (NSCC) Continuous Net Settlement (CNS) service are settled in DTC, providing clients with improved intraday liquidity management. CNS for Value also positions DTC to introduce intraday settlement slices – moving away from today’s end of day model.
- Improving Intraday Finality for Money Market Instruments (MMI) Transactions will create a new model for processing MMIs by aligning issuance and maturity activity within specific issuers, helping to eliminate risks associated with MMI reversals and further reduce intraday uncertainty.
- A Shortened Settlement Cycle study analyzes the business case for shortening the settlement cycle for U.S equity and corporate and municipal debt transactions from its current three days (T+3) to two days (T+2) or one day (T+1). Shortening the settlement cycle would reduce risk as well as reducing a customer’s liquidity and capital requirements. DTCC commissioned a study by the Boston Consulting Group and will discuss next steps with the industry in early 2013.
“The suggested changes discussed in the settlement white paper represent the most significant structural enhancements to the settlement process in decades,” said Susan Cosgrove, DTCC Managing Director and General Manager, Settlement and Asset Services. “In addition to promoting intraday settlement finality and reducing systemic credit and liquidity risk, these initiatives will align DTC with internationally-established best practices, promote straight-through processing and better position DTC for a shorter settlement cycle, if and when recommended.
The white paper -- A Roadmap for Promoting Intraday Settlement Finality in the U.S. Markets – can be accessed by clicking this link. http://www.dtcc.com/news/press/releases/2012/Settlement_White_Paper_Dec_10.pdf
Through multiple operating facilities and data centers around the world, DTCC and its subsidiary companies automate, centralize, and standardize the processing of financial transactions for thousands of institutions worldwide. With 40 years of experience, DTCC is the premier post-trade market infrastructure for the global financial services industry, simplifying the complexities of clearance, settlement, asset servicing, global data management and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, derivatives, money market instruments, syndicated loans, mutual funds, alternative investment products, and insurance transactions. In 2011, DTCC’s subsidiaries processed securities transactions valued at approximately US$1.7 quadrillion. Its depository provides custody and asset servicing for securities issues from 122 countries and territories valued at US$39.5 trillion. DTCC’s global OTC derivatives trade repositories record more than US$500 trillion in gross notional value of transactions made worldwide across multiple asset classes.
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