A T+2 settlement cycle could be adopted in the US by the end of Q3 2017, according to a T+2 Industry Steering Committee (ISC) white paper.
The ISC was set up to provide oversight and guidance for the US’s move to a T+2 settlement cycle, that will bring it into line with other jurisdictions around the world, including the EU which moved to T+2 settlement late last year.
Currently, securities traded in the US settle on a T+3 basis, but reducing this to two days should reduce operational, systemic and counterparty risks.
The implementation timeline recommended by the ISC is based on input from 600 industry participants across many market segments. US regulators will still need to support the move by amending applicable rules and testing of the new settlement cycle is expected to take place in Q2 and Q3 2017.
“After rigorous analysis, the T+2 ISC determined that a move to a T+2 settlement cycle is achievable by the end of Q3 2017. The move to T+2 will yield critical and immediate efficiencies that will help mitigate operational risk and keep the U.S. competitive with global markets,” said Tom Price, co-chair of the T+2 ISC, and managing director of operations, technology & business continuity planning and the Securities Industry & Financial Markets Association (SIFMA).
In addition to recommending the timeline for implementation, the white paper also sets out key issues and requirements for the industry.
These include having reference data and trade processing systems configured for T+2 as standard settlement, shortened deadlines for affirmation of trades and faster processing of physical securities.
The ISC said the whole industry will need to work hard to meet the target implementation date, but that it is achievable.
To continue to move the project on, the ISC is now looking to focus on regulatory outreach, communication, planning and industry-wide testing. Regulatory changes are not expected until the end of Q2 2016, at which point the ISC will be able to determine specific go live dates.