Trade settlement trends: T+2 to T+1, CSDR and internal optimization
In February 2022, the U.S. Securities and Exchange Commission proposed reducing the standard settlement cycle for most broker-dealer transactions from two business days after the trade date (T+2) to one business day (T+1) by 2024. This will be a much harder lift than the 2017 shift from a three-day settlement cycle (T+3) to a T+2 cycle, because aftermarket trades will essentially have to be settled in less than 12 hours.
In addition to the proposed changes in the U.S. markets, EU market participants are adjusting to the final stage of the Central Securities Depository Regulation (CSDR), or the Settlement Discipline Regime (SDR), which went into effect on February 1, 2022. Under SDR, CSDs operating in the European Economic Area (EEA) will, among other things, be liable for cash penalties for failed trade settlement.
Both of these regulatory changes will have a significant impact on market participants.
“As the trade lifecycle speeds towards T+1 settlement, firms of all sizes and levels of complexity are evaluating their readiness to meet this new mandate,” Jason Ganovsky, Sr. Director of Solution Engineering for Financial Services at Celonis, said. “At the same time assessing the impact of new rules and regulations such as CSDR continues to put pressure on middle and back office operations.”
It’s not just external pressures that are pushing market participants to evolve their trade settlement processes.
“Firms are always on the lookout for ways to optimize the trade settlement life cycle with an eye towards increasing liquidity, reducing risk and minimizing the costs associated with manual trade intervention,” Ganovsky said.