Will Exchange Mergers Help Advance a T+2 Standard?

The ripple effects coming from the spate of recent exchange mergers will be felt for quite some time. As a columnist, this is great because it gives me something to milk over the weeks to come. And ultimately, whenever anything happens in the universe I always like to ask, "What's in it for me?"

One such ripple—and I'm just spit-balling here—could come in the area of settlement cycles, or the trade date plus anywhere from one to five days (T+1 to T+5). I recently met with Omgeo's managing director of industry relations, Lee Cutrone. He says there is a 90 percent chance that the European Commission will propose a rule that establishes T+2 as the standard across the European marketplace. Currently, many nations employ a T+3 to T+5 cycle.

If this does indeed happen, Cutrone says he can’t fathom a scenario in which the US doesn't get on the bandwagon and begin the process—once again—of speeding up settlement times. Recall the days when straight-through processing (STP), or the goal of reaching T+0, was a primary goal for many firms.

Cutrone has been an expert in the field for two decades, so I'll defer to him on predictions, but I do wonder if these mergers will help to grease the wheels here in the US.

Take, for example, the new super-exchange, known unofficially as DB–NYSE, or NYSE–DB, or NYSE DB Euronext of Liffe, or From Berlin to New York with Love.

Germany already enforces T+2. (It should be noted that Deutsche Börse will have five of the nine spots on the new mega-exchange’s board of directors.)

To me, it is reasonable to believe that the German contingency will exert some pressure on NYSE to stump for T+2, and therefore the company will be working on the same field from Europe to the US.

Let's hope this happens because it would be good to see the buy side get its middle office in order. Of course, getting the buy side to agree on an industry initiative is like herding cats. So the only way to bring change will be from the regulators and the exchanges themselves.

I find it hard to believe that there are still firms that process trades through the use of a fax machine. It's as though Y2K never happened and Alan Greenspan is still chairing the Fed.

As I speak to asset managers and hedge funds I keep hearing the same refrain: We want to cut costs and become more efficient. While there will be an initial cost associated with switching to T+2, the move would help both those endeavors in the long run.

There was a time when the US was driving the car when it came to settlement cycles; just because we are now in the backseat doesn't mean that we can't have our voices heard on where the car is going. It's time to speak up.