DTCC Announces First Phase of Settlement Exposure Reduction
DTCC will focus on settlement optimization, looking to reengineer how it processes trades before end of day.
The DTCC announced its timeline for settlement optimization—which aims to shorten settlement exposure to 1.5 days to half a day from trade—with the first piece set to be implemented in the third quarter of next year. The company decided to take a phased approach based on feedback from the Settlement Optimization Working Group.
Settlement optimization will begin with night cycle reengineering, which will process settlement batches overnight to increase settlement rates the next morning. Currently, settlement rates are around 45 percent for transactions through a sequential algorithm, but the DTCC estimates this will increase to 90 percent. It will introduce an algorithm that will evaluate transaction obligations, available positions, transaction priority instructions and risk management, and determine the best processing order.
Night cycle reengineering must be approved by regulators before launch.
A white paper released by DTCC in January identified two proposals hoped to further bring down settlement exposure—”accelerated settlement,” which lets clients request trades to settle faster, and settlement optimization.
DTCC managing director and head of clearing agency services Murray Pozmanter said in a statement that night cycle reengineering is part of the firm’s vision to bring more efficiencies.
“Night cycle reengineering will create and lead to a number of industry benefits including improved processing efficiency, reduced operational risk and improved intraday settlement finality,” Pozmanter said. “With this plan, we are beginning to bring our vision for the evolution of the US equities market structure to life.”
More trades settled during the night cycle is a prerequisite before the second phase of settlement optimization. The next phase will be the introduction of morning settlement in addition to the end-of-day settlement done today. The idea is to move settlement of trades from the afternoon to before the market opens so the risk is reduced.
DTCC president and CEO Michael Bodson said the move to settlement optimization is a reaction to how complicated the process has become.
“We’ll have to do more work of course but the industry has complicated the process too much so we need to attack inefficiency in every way,” Bodson said during the annual Securities Industry and Financial Markets Association operations conference in Phoenix, Arizona.
Shortening settlement risk exposure has been a concern for years. The industry moved to a shortened settlement cycle—trade date plus two days, or T+2— in September last year after 20 years of longer cycles. The DTCC notes that settlement optimization will shorten exposure without further reducing the settlement cycle, which would require industry agreement.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@waterstechnology.com or view our subscription options here: https://subscriptions.waterstechnology.com/subscribe
You are currently unable to print this content. Please contact info@waterstechnology.com to find out more.
You are currently unable to copy this content. Please contact info@waterstechnology.com to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@waterstechnology.com
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@waterstechnology.com
More on Trading Tech
FCA eyes equities tape, OpenAI and Capco team up, prediction markets gain steam, and more
The Waters Cooler: More tokenization, Ediphy lawsuit updates, Rimes teams up with Databricks, and more in this week’s news roundup.
Buy-side data heads push being on ‘right side’ of GenAI
Data heads at Man Group and Systematica Investments explain how GenAI has transformed the quant research process.
Technology alone is not enough for Europe’s T+1 push
Testing will be a key component of a successful implementation. However, the respective taskforces have yet to release more details on the testing schedules.
MayStreet founder says LSEG abandoned integration in new court filing
In response to LSEG’s motion to dismiss a lawsuit filed by the founder of one of its acquired companies, lawyers for Patrick Flannery have offered more details around communications between MayStreet and the exchange group.
As outages spread, it’s time to rethink how we view infrastructure technology
Waters Wrap: First AWS and then Azure. And these are only the most recent of significant outages. Anthony says a change is needed when it comes to calculating server migrations.
LLM firms come for finance, BMLL gets bought, LSEG users get Preqin feeds, and more
The Waters Cooler: Tradeweb completes fully electronic RFM swaptions trade, IBM cashes in on digital asset mania, and more frights and delights in this week’s news roundup.
TMX’s CEO wonders if tokenization is a ‘solution looking for a problem’
While acknowledging the potential of tokenizing securities, John McKenzie said regulators shouldn’t move too fast, and let customer demand drive adoption.
Bolsa Mexicana embarks on multi-year modernization project
Latin America’s second largest exchange is embracing cloud and upgrading its infrastructure in a bid to bolster its global standing, says CEO.