With less than four months before the United States moves to a T+1 settlement cycle on May 28, market participants are encouraged to automate their post-trade operations to have adequate time to allocate, confirm and affirm at least 90% of their transactions by 9pm Eastern Time on trade date, a critical step for firms and the industry in achieving T+1 settlement.
Under today’s T+2 timeline, approximately 90% of all trades are affirmed by 11.30am ET on T+1, the current affirmation cut-off. To maintain existing levels of settlement efficiency, the industry should affirm at least 90% of all trades by the 9pm ET cut-off on trade date, post-trade services provider DTCC says in a report.
For this to occur, trade allocations should be completed by 7pm ET on trade date, leaving two hours for the confirmation and affirmation process to take place. Unfortunately, only 69% of all trades were affirmed by 9pm on trade date as of December 2023, DTCC data show.
To support the move to T+1, DTCC says, the industry must focus on affirming trades earlier. Institutional trades settled bilaterally through a depository trust company (DTC) can achieve higher affirmation rates more efficiently by:
- Ensuring market participants understand best practices of using a TradeSuite ID omnibus account number;
- Encouraging investment managers to obtain their own TradeSuite ID number; and
- Examining the pros and cons of first, having custodian counterparties affirm, second, self-affirming, or third, leveraging a central matching solution with auto affirmation capabilities such as DTCC Central Trade Matching’s Match to Instruct (M2i) workflow.
Accelerating the settlement timeline will benefit the industry by mitigating risk and cost while improving efficiencies. Regardless of individual market participant roles, DTCC says collaboration will be critical for the industry to achieve the 90% affirmation rate by 9pm ET on trade date to be ready for the US shift to T+1.