Most asset managers are ready for a shorter settlement cycle
in the US, says experts at Boston-based bank BBH, after
experiencing similar changes in Europe two years ago.
Matthew LaPointe, vice president, investor services at BBH,
said this week that as a whole, the industry is "well prepared"
and most are "looking forward" to the change.
The move, set to take place in September, shortens the US
settlement cycle from trade date plus three days (T+3), to
trade date plus two days (T+2).
It affects all securities that settle at DTCC's
subsidiary, The Depository Trust Company (DTC) including
equities, corporate bonds, municipal bonds, and unit investment
US government bonds and mortgage backed securities that
settle at the Fedwire Securities Service will not be
Many asset managers have already shifted to a T+2 settlement
cycle in Europe, implemented in 2015.
"Beyond international harmonization, there are two key
reasons for shortening the settlement cycle: reduced risk and
increased market efficiency," LaPointe wrote.
To prepare for the move to T+2, LaPointe says asset managers
need to start reviewing operational processes and ensure that
their systems can manage the new settlement timeline.
"Asset managers should also work with their brokers and
custodians to review their current affirmation rates, as well
as the impact on cash flows and projections.
"Beyond pure settlement issues, all activity that is tied to
security settlements should be analyzed.
"For example, asset managers that engage in securities
lending need to ensure these transactions are included in any
review process, since they will have one less day to recall any
shares that might be part of a securities lending