A very warm spring has come to the New York City area this week and coincidentally we are debuting a new online magazine from FTF News (a printed version is also available). To underscore our new commitment to magazine journalism, we have renamed the publication “FTF Focus,” and for this special edition, we took on a single subject — the push to shorten settlement cycles.
For this special issue, we dive into the role of post-trade systems and services utility provider DTCC, other groups and individuals are leading the charge in the United States. We also take a look at how the European Union was able to move to the trading date plus two business days (T+2) last year without major interruptions or fiascos. We also interviewed Omgeo and ISITC executives to get a reality check on the T+2 process.
What is the result of all that investigation? It’s clear that the time has really come for the U.S. markets to come to terms with T+2 and the ramifications that it will have for operations.
It’s almost a given that the incumbent settlement cycle in the U.S. — known as T+3 — has to end in favor of a shorter cycle. The arguments against change are overwhelmed by the benefits: greater automation for settlement, streamlined workflows, the end of error-prone manual systems, better risk mitigation and the greater Ops efficiency demanded by counterparties and investors. As will all major overhauls, the positives are pushing the giant U.S. market forward.
Yet there hasn’t been a rush to make the change. Twenty years ago, capital markets operated on a T+5 settlement cycle and the SEC moved to reduce the cycle from five business days to three. This time around, a consortium of players rather than regulators is leading the charge as we detail in our story on Page 6. This latest push to shorten the cycle to T+2 in the U.S. is presented as an effort orchestrated by the private sector. However, some argue that the regulators may be needed to complete the process.
By contrast, we report upon the roles that regulators overseeing the European Union played in helping firms move to T+2 from T+3 on Oct. 6 of last year (Page 10). There was much talk about the disarray that this transition would cause after the switch. But as the smoke cleared, securities firms found they had managed to weather the storm and adjust to the new settlement cycle with few, if any, major problems.
Given that the push for T+2 is gaining momentum in the U.S., American firms should be a little skeptical of the European example as they attempt to emulate it. As the pressure builds for the T+2 switch in the U.S., the unique demands of these markets may overshadow the similarities. Buy-side firms in the U.S. will likely apply lessons learned from the EU, although a move to T+2 in the U.S. will have its own idiosyncrasies.
To get a reality check, we interviewed Tony Freeman, the London-based executive director of industry relations for post-trade systems and services provider Omgeo (Page 14). Freeman provides a global perspective on where the industry is as far as the move to T+2, and how far it has to go. Freeman also discusses the forthcoming synergies for the offerings of Omgeo and the DTCC. Lastly, we spoke to ISITC Chair Jeffrey Zoller about the standards body’s role in the U.S. effort to shorten settlement cycles (Page 18).
Click here http://bit.ly/1ctooo4 to download the magazine for free until May 29. We hope you enjoy the new incarnation of the magazine and will share your thoughts and reactions to it.
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