Background on the T+2 Initiative
The volunteer financial industry initiative to migrate to a shortened settlement cycle was successfully implemented on September 5, 2017, after years of coordination, preparation, and testing by market participants, regulators, and other stakeholders across the industry.
T+2 Securities Settlement Efforts in the United States
In 2012, the Depository Trust & Clearing Corporation (DTCC), which has worked with partners for a number of years to mitigate risks in the US capital markets, renewed studies to explore shortening the settlement cycle for equities, municipal and corporate bonds, and unit investment trusts (UITs) from trade date plus three days (T+3) to trade date plus two days (T+2).
Building on work completed in 2000, DTCC engaged the Boston Consulting Group (BCG) to complete an industry-wide cost/benefit analysis of a shortened cycle. After BCG concluded that the business case for progressing with the initiative was generally positive, DTCC gathered considerable input from industry participants, validated the results of the BCG analysis, and obtained industry support for a move to T+2.
Following the endorsement of ICI’s Board of Governors, as well as the backing of other associations, DTCC in April 2014 announced the formation of an Industry Steering Committee (ISC), co-chaired by ICI (representing the buyside) and the Securities Industry and Financial Markets Association (representing the sellside), to provide governance for the initiative. It also formed an Industry Working Group (IWG) to define the effects of implementing a move to T+2.
With significant involvement from industry participants—including associations, DTCC, exchanges, buyside firms (asset managers), global custodians, and sellside firms (institutional and retail broker-dealers)—the ISC and IWG established an organizational framework featuring 17 major work streams and moved the project forward.
A website for the project sponsored and maintained by DTCC served as the communication hub for the public, featuring general information, high-level meeting summaries, white papers, and press releases. It also contained a frequently asked questions section where visitors were able to post questions and make inquiries about the project.
In March 2016, the ISC issued a white paper that highlighted required processes for firms moving to a shortened settlement cycle. In March 2017, the US Securities and Exchange Commission (SEC) finalized rule changes that provided regulatory certainty to promote the coordinated industry effort to transition to T+2. That critical milestone kept the T+2 project moving toward implementation and enabled other regulators to align their rules with those of the SEC to provide a clear framework for the remaining steps to implement T+2.
T+2 Securities Settlement Progress in Europe
On October 6, 2014, 27 Eurozone countries converted from a T+3 to T+2 securities settlement cycle. This transition was the first of several changes to support the pan-European “Target2 Securities,” or T2S, system initiative, which facilitates borderless, federation-neutral cash and securities settlement in central bank money. T2S is one of the largest security settlement platforms in the world, settling an average of 550,000 transactions per day. The change to T+2 was facilitated by the Regulation on Settlement and Central Securities Depositories (known as CSDR) that was adopted by the European Parliament in April 2014. As of September 2017, T2S was fully operational.
T+2 Securities Settlement Efforts in Other Countries
Global harmonization for T+2 securities settlement is being considered and implemented by other jurisdictions around the world. Some markets in Asia, such as Australia, Hong Kong, and South Korea, already settle securities transactions on a T+2 cycle. The T+2 cycle also took effect in Canada, Mexico, and Peru on September 5, 2017.
US Industry Resources
The following resources are available for organizations operating in the United States that are interested in this effort.
- Updated Investor Bulletin: New “T+2” Settlement Cycle—What Investors Need To Know,
- US Securities and Exchange Commission, August 2017
- For T+2, It’s All Systems Go
- Financial Services Industry Commends SEC on Final Rule to Facilitate a Shorter Settlement Cycle in US (pdf)
- ICI Submits Comment Letter on SEC's Amendment to Securities Transaction Settlement Cycle Proposal (pdf)
- ICI Welcomes SEC Proposal for T+2 Settlement Implementation
- Financial Services Industry Applauds SEC Action to Facilitate a Shorter Settlement Cycle (pdf)
- US T+2 Is Coming—and Bringing Many Benefits with It
- ICI Submits Comment Letters Supporting Efforts by MSRB and FINRA to Shorten the U.S. Securities Settlement Cycle (pdf)
- T+2 Test Approach: DTCC’s High-Level Testing Framework (pdf)
- Industry Steering Committee Publishes Playbook for Implementing T+2 Settlement Cycle in U.S. by the End of 3Q 2017 (pdf)
- T+2 Industry Steering Committee Applauds Regulatory Support for Move to Two Day Settlement Cycle in the United States (pdf)
- T+2 Industry Steering Committee and DTCC Statements on SEC Commissioners' Support of U.S. T+2 Initiative (pdf)
- SEC Statement Regarding Proposals to Shorten the Trade Settlement Cycle
- SIFMA and ICI Submit Comments to the SEC Regarding Shortened Settlement Cycle Regulatory Initiatives (pdf)
- Financial Services Industry Announces Proposed Timeline for T+2 Settlement Cycle in the U.S.
- T+2 Industry Steering Committee, June 2015
- Shortening the Settlement Cycle: The Move to T+2
- T+2 Industry Steering Committee, June 2015
- DTCC Recommends Shortening the U.S. Trade Settlement Cycle
- Beyond the Horizon: A White Paper to the Industry on Systemic Risk
- Cost Benefit Analysis of Shortening the Settlement Cycle
- Boston Consulting Group, October 2012
- Industry T2 website
- US Securities and Exchange Commission: About Settling Trades in Three Days: T+3
European Industry Resources
The following resources are available for organizations with operations in Europe that are interested in this effort.
- European Central Bank: Best Practices For T2S Markets’ Migration to T+2
- European Central Bank: T2S
- European Commission: The EU Single Market: CSDR