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  • Writer's pictureThe San Juan Daily Star

Wall Street ushers in new era of faster trade settlement

U.S. trading moved to a shorter settlement on Tuesday, which regulators hope will reduce risk and improve efficiency in the world’s largest financial market but may temporarily lead to a rise in transaction failure for investors.


To comply with a rule change the U.S. Securities and Exchange Commission (SEC) adopted last February, investors in U.S. equities, corporate and municipal bonds and other securities must settle their transactions one business day after the trade, instead of two, beginning Tuesday.


Here are some reactions:


“Tomorrow and the next day are the big days … It comes down to customer allocations and affirmations and that won’t really wash itself out for the next few days.”


“I spoke to a number of my counterparts in the banking world and in the asset management world and one of the things that I have seen was there was an intentional effort to have a little bit more cash on hand to address any fails that may come out of this whole thing. I don’t think it’s a significant increase, but it’s certainly enough to be able to address a normal settlement cycle that goes from two days to one.


“The mid-size, and the smaller managers are the ones that we’re going to be watching closely because they tend to be more reliant on manual processes, on files coming from their custody agents and their prime brokers in spreadsheets or in PDFs … and their processes are much more people-driven rather than technology-driven.”


“It’s probably too soon to tell. I think everyone is prepared for it. We’ve had things like this in the industry before, so you prepare for it, and then wait and see basically. I haven’t seen anything new yet. We haven’t had any problems. Hopefully it goes well.


There will be some growing pains and a few hiccups I would imagine... If there is something we’ll all know pretty quickly. Tomorrow morning we’ll see if anything happened. It’s interesting because tomorrow it will be a settlement date for two trading days - Friday and today’s.


You could have potentially some issues with extended settlements... But overall (T+1) is a good thing. When it comes down to why they did it, it’s lowering the risk. When there’s less time to settle, there’s less risk.”


“Every single asset manager out there is going to be working very closely with their custodian today to make sure everything can settle as quick as possible. But as far as evaluating how the turnover has gone, that will require aggregate data which is at earliest month-end, most likely quarter-end.”


“Throughout the day we will see if there are any issues. I believe most managers have been very proactive in making sure everything is booked properly ... There is a big value chain involved in this process and now we have to make sure that the t’s are crossed and the i’s are dotted and we’ll be able to see what fell through the cracks.”


JEFF NAYLOR, CHIEF INDUSTRY OPERATIONS OFFICER AT THE INVESTMENT COMPANY INSTITUTE:


“ICI has worked closely with our industry partners and regulators to ensure a seamless transition to a T+1 settlement cycle. To date, all T+1 implementation activities have been completed according to plan. We are now operating in a T+1 settlement cycle and are monitoring transaction flow. Wednesday is the last day market participants will settle T+2 transactions coupled with the first day of finalizing T+1 trades, and we are confident we will continue to see smooth execution.


“The US T+1 Command Center, co-led by ICI and SIFMA, operated throughout the weekend to confirm readiness among major market participants including DTCC, custodian banks, major broker/dealers, buy-side participants, and trading and infrastructure service providers to the industry. Additionally, ICI and SIFMA updated regulators throughout the weekend including the SEC, Federal Reserve Bank of NY, OCC, FINRA, and Treasury.”

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