Don't Hold Your Breath on T+2 Arriving in 2017

The US market will eventually move to T+2 but Anthony says that that happening by Q3 2017 is ambitious.

Anthony Malakian, US Editor, Waters &

The US market will eventually move to a T+2 settlement cycle. But Anthony says that the expectation of that happening by Q3 2017 is ambitious.

Recently the T+2 Industry Steering Committee (T+2 ISC) released a timeline that aims to move the US markets to a settlement cycle of two days ─ hence, T+2.

This is a necessary first step ─ though this is probably step 1,001 in the process ─ to improve the trading ecosystem in the US and move it in line with other markets that have surprisingly left America in the dust. I really do want this to work. I've been hearing about T+2 since I first started here as it's a topic Waters has been covering for the better part of two decades.

And that's your problem, right there ─ the industry should be very skeptical of the feasibility of these proposed deadlines. The Steering Committee is asking for a lot of pieces to fall into place; it is asking for the cooperation and commitment of several regulatory bodies; it's also asking for all firms to make improvements to their platforms. Then, if all that happens, there has to be testing to make sure this can work by the proposed deadline of Q3 2017.

Ambitious is the word that comes to mind. I'm not saying it can't be done. It's worked in other markets; there's no specific reason why it can't work here. But let's face it, when it comes to imposing industry-wide changes that involve regulatory clarity and determination, and trading participant buy-in and investment, the wheels tend to start grinding to a halt fairly quickly. And with T+2, they've done it so many times that most people have lost count.

The Plan and Its Gaps

John Abel, who is vice president of product management, settlement and asset services at the Depository Trust & Clearing Corporation (DTCC), spoke with my colleague Dan DeFrancesco about the initiative, since the DTCC organized the T+2 ISC.

He says that first, regulators need to show that T+2 is a priority, as firms aren't likely to start building until there's a fire placed underneath them.

From Dan's story:

Abel says he's heard from several firms that they won't commit to doing any type of build until there is some regulatory certainty and there is a clear understanding of the changes that need to be made."

According to Abel, regulators are aware of the industry's dependency on their buy-in.

"We have on-going dialogue with the regulators and, in general, they're supportive of the initiative," Abel says. "Although, they haven't committed to the time frames outlined in the paper."

That's your first red flag. The regulators have a lot of battles that they're fighting at the moment, and that extends past these shores, so T+2 is just one of many projects they're working on.

And then there's the actual IT build. Again, from Dan's story:

A cost-benefit analysis of a move to T+2 done by The Boston Consulting Group in October 2012 showed the industry would need to make an investment of $550 million. Abel says that number likely isn't relevant anymore, and another goal of T+2 ISC is to put together a more accurate figure.

Before that figure is released, no one is likely to budge.

Not a Losing Battle, But an Uphill One

Listen, I don't have to tell anyone with any knowledge of the financial markets that firms are already a bit cash-strapped when it comes to heavy technology projects, and though there are good reasons for settlement to be high up on the list, it's not. Banks and asset managers aren't going to take T+2 as a priority until they're forced to make it a priority.

"It's really contingent upon how much work a firm can do without regulatory certainty. I would be surprised if firms didn't act at all until the final rule set came out. I think most firms will do some pre-work," Abel said.

The DTCC is very committed to this issue; of that, I have no doubt. Thankfully the DTCC is taking this seriously and grabbing the reins. And I have no doubt that T+2 will eventually be a reality, even if I'm not holding my breath on 2017 being that date. Additionally, these guidelines handed down by the T+2 ISC provide some significant movement and guidance.

Testing is supposed to begin by the end of Q1 2017, or the beginning of Q2, with a go-live date of Q3 2017. My money is on the over. Not because I think that the industry doesn't truly want this or that because these guidelines are based in fiction. My experience just tells me that when it comes to ambitious deadlines, the best bet is almost always more time.


Some Random Thoughts

* It's not the end of the hockey season until the season-ending "Hockey Night in Canada" montage...

OK. The season's over. See y'all next fall.

* Book recommendation: This was written in 2006, so I'm way behind here, but I just finished "The Looming Tower" and it was fantastic. It's authored by Lawrence Wright ─ who writes for the New Yorker and who put together the Scientology expose, "Going Clear" ─ and it brilliantly lays out the buildup and intelligence screw-ups that led to the 9/11 terrorist attacks.

After reading the Paul Haggis New Yorker profile and then watching the "Going Clear" documentary, I wasn't planning on reading the book, but "The Looming Tower" was so powerful that "Going Clear" is next on my list.

* If you still believe that Tom Brady deserves to be suspended four games for the "Deflategate" malarkey ─ and I'd like to use a far stronger word than malarkey, but this is a family publication ─ might I recommend this piece from the New York Times.

* Speaking of cheatin' 'bout them St. Louis Cardinals?

* A thought exercise for you: If humanity united together ─ no wars, no racial or religious differences, just one day humanity unites as one ─ what should we all work together to achieve? If you like, I can tell you my answer over a few beers. 

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