The Depository Trust and Clearing Corporation (DTCC) has published new research tracking the progress of affirmation in the US ahead of the switch to T+1 and has set a target of 90% affirmation by 9pm ET on trade date come 28 May.
“When you look at the US regulation on T+1, there are no specific targets for affirmation rates,” Val Wotton, head of ITP at DTCC told The TRADE’s sister publication, Global Custodian. “Same day affirmation and the obligation to achieve it is called out but there are no specific targets that have been set. DTCC has taken a thought leadership role here to coalesce the industry, and we’ve set a target which everyone can progress towards.”
In today’s T+2 environment, approximately 90% of all trades are affirmed by 11:30am ET on T+1 – the current affirmation cut-off point. With this in mind, the DTCC felt a similar target rate for a T+1 environment would be appropriate to ensure settlement efficiency remains high in the market.
Data published in the research revealed that in December 2023, only 69% of trades were affirmed by 9pm on trade date. Digging deeper into the data, 78% of trades processed through clearing (NSCC) were affirmed by 9pm, while just 56% of bi-lateral trades through DTC currently met the target.
Wotton explained that prime brokers and hedge funds are highly incentivised to get their transactions into clearing – which has resulted in a 95% affirmation rate in a T+2 world for NSCC trades. Additionally, eight of the top 10 prime brokers have already achieved a 90% affirmation rate by 9pm ET on trade date.
It’s the non-cleared flow, the bilateral settlement piece, where there are still challenges, Wotton said. “This is because of the interactions between custodians, investment managers and broker-dealers and how those relationships work, especially where either the custodian or investment manager is performing the affirmation process.
“In a T+1 world, it’s about how the custodians and IMs can work collectively to make sure that the custodian is in the position to be able to affirm by 9pm ET. Additionally, IMs need to know how they will comply with the requirement to make and keep records of when trades are allocated, confirmed, and affirmed.”
A full copy of the research can be accessed here.