Prep for T+2 said to be on target

Industry officials have expressed optimism about the progress being made by firms to prepare for quicker securities settlements, which will go into effect in a few weeks.

Jon Ciciola, director and product manager at the Depository Trust & Clearing Corporation (DTCC), told delegates at last week’s Shareholder Services Association (SSA) annual conference in Bonita Springs, Florida, that he had not heard of anyone panicking in the run-up to the September 5 deadline. Most of the work to be done in the time remaining will be industry testing, he added.

The SEC and the Municipal Securities Rulemaking Board earlier this year adopted rule changes that will shorten by one business day the standard settlement cycle for many US securities, including equities, bonds and unit investment trusts. From September 5, settlement times will be cut from three business days, known as T+3, to two business days, known as T+2.

The rule changes are intended to reduce counterparty risk, lower margin requirements for clearing agency members, reduce pro-cyclical margin and liquidity demands during periods of market volatility, and better align the US settlement requirements with other markets around the world.

Testing industry preparedness ahead of implementation has gone smoothly so far, said fellow panelist at the SSA event Kevin Burns, senior manager at Computershare. The US T+2 Industry Steering Committee, organized by the DTCC and co-chaired by the Securities Industry and Financial Markets Association and Investment Company Institute, has also set up an implementation command center to help ensure the changeover goes smoothly, Ciciola noted.

Indeed, many professionals expect attention to shift to T+1 shortly after the move to T+2. ‘I think the industry will be well set up for T+1,’ Burns said, though he noted that research indicates taking the next step would involve significant costs.

Kim Bouch, vice president and shareholder services manager at Old National Bancorp, told Corporate Secretary last month that although she expected a smooth transition to T+2, the problem with T+1 would be the continuing requirement for physical certificates, which cannot be processed as quickly as needed under that time frame (CorporateSecretary.com, 6/12). 

The Office of the Comptroller of the Currency (OCC) in June issued guidance urging banks to prepare for complying with T+2 related to their securities activities, including banks’ investment and trading portfolios and securities settlement and servicing provided to banks’ custody and fiduciary accounts (CorporateSecretary.com, 6/14). Banks that offer retail non-deposit investment products through a broker-dealer should assess the broker-dealer’s preparedness for the new settlement time frames, officials say in a related filing. The OCC expects banks to be prepared to meet T+2 standards as of the September 5 deadline, they add.

OCC officials say banks’ management teams should establish and follow a project plan for implementation, taking into account issues such as changes to investment accounting, trust accounting or other securities processing systems, and changes to operational procedures for securities clearance and settlement, income processing, corporate action processing and securities lending.