Most asset managers are ready for a shorter settlement cycle in the US, says experts at Boston-based bank BBH, after experiencing similar changes in Europe two years ago.
Matthew LaPointe, vice president, investor services at BBH, said this week that as a whole, the industry is "well prepared" and most are “looking forward” to the change.
The move, set to take place in September, shortens the US settlement cycle from trade date plus three days (T+3), to trade date plus two days (T+2).
It affects all securities that settle at DTCC's subsidiary, The Depository Trust Company (DTC) including equities, corporate bonds, municipal bonds, and unit investment trusts.
US government bonds and mortgage backed securities that settle at the Fedwire Securities Service will not be affected.
Many asset managers have already shifted to a T+2 settlement cycle in Europe, implemented in 2015.
“Beyond international harmonization, there are two key reasons for shortening the settlement cycle: reduced risk and increased market efficiency,” LaPointe wrote.
To prepare for the move to T+2, LaPointe says asset managers need to start reviewing operational processes and ensure that their systems can manage the new settlement timeline.
“Asset managers should also work with their brokers and custodians to review their current affirmation rates, as well as the impact on cash flows and projections.
"Beyond pure settlement issues, all activity that is tied to security settlements should be analyzed.
“For example, asset managers that engage in securities lending need to ensure these transactions are included in any review process, since they will have one less day to recall any shares that might be part of a securities lending transaction.”