It has been a long time coming, but T+2 is taking shape in the United States. The advantages of a shorter settlement cycle are now widely cited, the most common being the minimising of potential risks between trade date and settlement date. A report penned by BCG in April 2014 for the DTCC provided some concrete projections regarding industry-wide cost savings achieved by the move: in the case that a broker defaults, for example, potential loss faced by buy-side firms can be reduced by 35% to 40%. Another projection estimates that posting margin to the CCP for one day less translates to cost reductions amounting to 15% in the case of normal market volatility – and up to 24% during high volatility. The list goes on, and the savings are hardly negligible.</p> With the green light from the industry, the DTCC has committed to a T+2 model for equities, corporate and municipal bonds and unit investment trust. While a structured schedule with a defined finish line has not as yet been defined, 2016/2017 seems like a realistic goal. The process will be a more organic one as compared to Europe. Rather than being forced into effect by a regulatory body, the road to T+2 is meant to be a collaborative process between key stakeholders in the market, including the ICI, the AGC and the Association of Institutional Investors, who will be in charge of managing available resources.</p> There will of course be bumps along the road. Quelling the fears of retail brokers, who will in turn have the task of reassuring their clients that a shorter settlement cycle is in their best interest, looms large on the horizon. “Added incentive will be provided by Europe, which will achieve T+2 by October. The US will not want to be far behind,” says Frank Colella, Head of sales and relationship management for broker dealer services US at BNP Paribas Securities Services. “But bringing the world’s largest capital market on to the same footing as the majority of others will deliver big benefits for participants both within and beyond its borders.” Firms still using outdated communication methods like fax, which have trouble matching on T+1, may provide resistance, but the mood remains optimistic. Now that that the question has made the major shift from ‘if’ to ‘when’ and ‘how’.</p> </p> Article contributed by BNP Paribas.</em> </p> Related links:</strong></p> Read more on Quintessence, BNP Paribas Securities Services’ thought leadership space</a></li> </ul>