Depository Trust and Clearing Corporation is calling on firms to accelerate their preparations to settle US securities transactions within a tighter timeframe following analysis that shows a quarter of current trades would fail to meet new rules that come into force in just over a month.
The settlement time for US securities trades is due to be cut from two business days after a trade takes place to just one from May 28 – known as T+1 – as the Securities and Exchange Commission looks to reduce credit, market and liquidity risks within transactions.
That is forcing many investors to overhaul their operations to achieve faster affirmation when buying and selling US equities and bonds. The move is particularly troublesome for foreign investors as it will also reduce the time they have to complete the currency trades used to purchase US securities.
DTCC, which runs clearing and settlement services, said securities transaction data for March showed 74.95% of US transactions achieved same-day affirmation before the 9pm cutoff – only slightly higher than the 74.5% of trades that met the target in February.
Only 55% of custodians or investment managers conducting self-affirmations met the deadline, DTCC said, up from 53% in February. That was much lower than the 83% of prime brokers meeting the target and the investment manager auto-affirmation rate of 91%, which was up from 89% in February. The post-trade firm said it had added 30 investment managers to its auto-affirmation service last month, bringing the total to 399.
“With a little over one month left until the T+1 deadline, market participants must accelerate their preparations and readiness,” DTCC said in a statement.
“Improvement in affirmation rates – aided by technology – can reduce the likelihood of trade failure and provide needed efficiency to achieve accelerated settlement timelines. Leveraging automation to optimise settlement workflows and implementing straight through post-trade processing better positions firms to achieve T+1 settlement.”