To facilitate increase in efficiency and reduction in risks, US stock and bond trades will now settle in two, rather than three, days. Both Canadian stocks and bonds, and Mexican equities are also shifting to T+2. The move is in line with Europe, Australia and Hong Kong.
The Depository Trust & Clearing Corporation (DTCC) says shortening the settlement cycle offers benefits for the industry and market participants including reduced credit and counterparty risk, increased financial stability, operational process improvements, cash deployment efficiencies, increased market liquidity, lower collateral requirements, enhanced global settlement harmonization and improved safety and efficiency for investors and market participants.
The lower levels of risk associated with a shorter settlement cycle are expected to reduce the average daily capital requirements for clearing trades through DTCC’s National Securities Clearing Corporation by approximately 25%, or $1.36 billion.
Murray Pozmanter, Managing Director and Head of Clearing Agency Services and GOCS at The Depository Trust & Clearing Corporation, says: “The US move to a T+2 settlement cycle marks the most significant change to the market’s settlement cycle in over 20 years. A collaborative industry-driven effort with strong support from regulators, the T+2 initiative has achieved its common goal, which will ultimately further reduce risks and costs for the benefit of the investors and market participants.”