The Depository Trust and Clearing Corporation (DTCC) has thrown its support behind initiatives to introduce a shortened settlement cycle in the US in order to help reduce credit and liquidity risk.
In a white paper, it said research suggests a transition from the current T+3 regime to a two-day settlement cycle would be beneficial for both the industry and investors.
Michael Bodson, president and CEO of DTCC, said: “After a comprehensive assessment of the potential impact on market participants, it’s clear that time equals risk. A shortened settlement cycle will substantially reduce risk across the industry and for underlying investors.”
The white paper, supported by research from Boston Consulting Group, said a move to a T+2 cycle would reduce risks in the financial system by more quickly freeing up funds for reinvestment and to reduce credit and counterparty exposure.
It would also help during times of volatility by reducing the procyclical increases in margin and liquidity needs that can occur.
The move would additionally reduce liquidity requirements for DTCC’s subsidiary, the National Securities Clearing Corporation, which would free up capital for broker dealers by reducing the clearing fund requirements.
The white paper adds to growing support in the US for a T+2 settlement cycle, with the Investment Company Institute, Association of Global Custodians, Securities Industry and Financial Markets Association and some investment banks all backing a change in regime.
A steering committee and working parties to drive forward T+2 adoption in the US are being formed and DTCC said it will continue to work closely with them to support the change.
Europe is set to introduce a standard two-day settlement regime in 2015 under the TARGET2 Securities initative.