Forefront Communications

Pensions & Investments: Now that T+2 is Here, Some Ready for Even Shorter Cycle

Mark Dowd

Mark Dowd

The apparently seamless shift in the U.S. to a trade-plus-two-day settlement cycle, or T+2, from the previous three-day cycle has some industry participants looking to reduce the cycle even further to bring more benefits to asset owners and money managers.

The move to T+2 resulted in an estimated 25%, or $1.36 billion, reduction in capital requirements for settlements, according to clearinghouse and settlement provider Depository Trust & Clearing Corp. That same amount of savings could be realized by reducing the cycle by another day, said John Abel, executive director, DTCC Settlement Services, New York, though he cautioned it would come at a much higher compliance cost for industry participants than T+2.

While the drivers of the move to T+2 — including harmonization with existing European rules that have been in force since 2014 — could apply to a further reduction of the settlement cycle, several sources said, the likely main driver of any future move would be rapid technological advancements such as blockchain or cloud-based systems.

“With distributed-ledger technology, who needs a central clearinghouse?” said Oren Blonstein, managing director and head of product at trading technology provider TORA.

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