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Advancing the settlement model of the US securities markets
In a securities settlement cycle, one of the greatest factors affecting market risk — including counterparty risk, credit risk and default risk — continues to be time. One of the areas of exposure remaining in the settlement system today is the risk of a sudden event that could affect the transfer of cash or ownership of securities from trade execution through trade settlement. The current standard cycle for settling equity trades in the US is trade date plus two business days (T+2); however, industry consensus is growing that accelerating this settlement cycle to one day or less will better serve market participants by reducing costs and mitigating risk. While shortening a settlement cycle sounds simple enough, the execution is more complex. Equity clearance and settlement is part of a large ecosystem of global financial markets, interconnected processes and linked systems. Accelerating the US cash market settlement cycle will have both upstream and downstream impacts on other parts of the market structure, such as derivatives, securities lending, financing, foreign clients and foreign exchange and collateral management. Settlement is one of the most powerful and critical processes of The Depository Trust & Clearing Corporation (DTCC), and as the backbone of the US financial services industry, DTCC clears and settles hundreds of billions of dollars in equities transactions every day. This paper suggests that the industry’s primary goal must be to create efficiencies without introducing additional risk to markets. DTCC is actively working with its industry partners towards a path to accelerated settlement of T+1 and beyond by taking a careful, methodical approach to examine all issues and potential impacts for the entire US equities market.
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John Abel serves as the Executive Director of Clearance and Settlement Product Management at The Depository Trust & Clearing Corporation (DTCC). His primary responsibilities include identifying, evaluating and developing strategic business opportunities within DTCC’s clearance and settlement product lines. John began his career at DTCC in 1987, and over the past 35 years has held a number of operational, strategic and project-related positions, including supporting industry initiatives to shorten the settlement cycle from T+5 to T+3, T+2, and now to T+1.