Most traders are on track to meet the Sept. 5 deadline for two-day settlement of trades in the U.S., sources said, but some think T+2 is already obsolete before it becomes the norm.
“We don't see an issue with T+2,” said Eric Noll, president and CEO of Convergex, a New York-based agency brokerage. “We've been a proponent of this for some time. Europe has been using T+2 for years, and we all were able to get ready for that. It turned into a non-event. We expect the same here. It's been long overdue in this country. I'd be in favor of moving to T+1 as quickly as we can.”
Added Dayle Scher, senior analyst, TABB Group LLC, New York, “Most managers already do confirmation in T+1. T+2 already is obsolete before it started.” She called the transition to T+2 “kind of a no-brainer.”
But sources said two-day settlement is necessary because it takes longer to settle securities lending transactions as well as to reconcile problem trades, with the back-office work necessary to complete them, which is why T+2 will be the standard.
Securities lending and more difficult trades “remain more manual today than other parts of the market,” Mr. Noll said. “They're not as far along on the technology spectrum as those who do straight-through processing.”
Short selling on the stock loan business “is more manual than most trading,” said Mr. Noll. “It's "call a guy and borrow the shares.' If they have more time to do that and settle, I guess it's more comfortable for them.”
While “nobody's anticipating Armageddon” from the transition, said Greg Korte, principal, head of North American trust/custody and securities lending consulting at Mercer Sentinel, Chicago, “if there will be hiccups from this, they'd be (in the back office).” And among smaller prime brokers, “someone down the list who hasn't spent money on infrastructure, maybe those brokers that struggle today will still be struggling under T+2,” he said.
Ms. Scher agreed. “Settlement in securities lending takes longer than other securities trades,” she said. “They'll be lucky to get settlements in 48 hours. It's possible they would see shortages in lendable securities as a result.”
The Securities and Exchange Commission on March 22 signed off on the move to T+2 in the U.S., in an effort to enhance efficiency and reduce risk, and to align the U.S. with the European Union, which has used a T+2 cycle since 2014.
The impetus to shift to a reduced trade settlement cycle came from the industry: The change was spearheaded by the U.S. T+2 Steering Committee, a panel of buy-side and sell-side representatives. Organized by the Depository Trust and Clearing Corp., a U.S. clearing and settlement service provider, the steering committee included representatives from the Investment Company Institute, Securities Industry and Financial Markets Association and Deloitte LLP.
Broadly, said Martin Burns, chief industry operations officer at the ICI in Washington, “so far, we're all in good shape. There are no participating groups or market participants who've said they're having difficulty in meeting the deadline. The buy side, the sell side, all have said they're in good shape. The DTCC's test routines on T+2 are going well.”