US Clearinghouse DTCC Says Processing Issue Resolved as Industry Hits T 1 Target

The finance industry met a key target to process US securities trades faster on the first day of new one-day settlement rules, although there were some delays to overnight systems.

Bloomberg
First Published30 May 2024
US Clearinghouse DTCC Says Processing Issue Resolved as Industry Hits T 1 Target
US Clearinghouse DTCC Says Processing Issue Resolved as Industry Hits T 1 Target

(Bloomberg) -- The finance industry met a key target to process US securities trades faster on the first day of new one-day settlement rules, although there were some delays to overnight systems. 

Some 92.76% of transactions were “affirmed” — a mandatory step before settlement — by 9 p.m. eastern time on Tuesday, Depository Trust & Clearing Corp. data published Wednesday showed. That surpasses the DTCC’s target of 90%, a level it has said is necessary to maintain market efficiency and help avoid an increase in failed trades as the settlement cycle is halved from two days to one.

The results are an early indication that the industry has sped up its processes to conform with the new Securities and Exchange Commission rules. Yet the transition to what’s known as T 1 — which is intended to reduce risk in the financial system — hasn’t been without the teething problems some analysts predicted from a major overhaul of Wall Street’s financial plumbing.

There were processing delays to some of DTCC’s overnight systems. Those issues have been “resolved and we are processing transactions normally,” a DTCC spokesperson said in response to Bloomberg News questions.

Financial firms across the globe have been preparing for the shift to T 1 for months by relocating staff, adjusting shifts and overhauling work flows. Company officials have said they are confident in their own readiness, though some expressed anxiety over whether every other counterparty and intermediary is similarly organized. The SEC said last week the transition may lead to a “short-term uptick in settlement fails and challenges to a small segment of market participants.”

Read More: Wall Street Returns to T 1 Stock Trading After a Century

Some evidence of firms’ preparations may be playing out in money markets. Funding pressure in US repo trading was heavier than expected on Tuesday, which might reflect “heightened precautionary demand for liquidity in the transition to T 1 settlement,” Wrightson ICAP economist Lou Crandall wrote in a note.

While the DTCC affirmation data is encouraging, challenges remain. Wednesday is a so-called double settlement day, when T 2 trades from Friday and Tuesday’s first batch of T 1 trades need to complete at the same time. 

That’s a challenge for trade-processing teams, though it’s a well-flagged risk they have been war-gaming for months. The DTCC has been conducting regular industry tests since last year, some of which have examined firms’ ability to handle a double-settlement day.

After that, there’s MSCI Inc.’s index rebalancing at the end of the week, when funds around the world tracking its gauges will be shuffling holdings at the same time.

“We are encouraged by the feedback from the industry,” said Tom Price, managing director and head of technology, operations, and business continuity for the Securities Industry and Financial Markets Association.  “The transition is moving forward.”

More stories like this are available on bloomberg.com

©2024 Bloomberg L.P.

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