In the U.S., there have been many serious discussions and efforts to move the securities industry from the trading day plus two (T+2) settlement cycle to T+1.
In addition, the regulators, standards groups, and industry associations are mulling the changes that must be made to facilitate the shift to T+1.
But, at some point, the talking ends and the testing begins.
With that in mind, DTCC officials recently released a “comprehensive document to help clients prepare for the transition to an accelerated settlement cycle in 2024.”
The nuts-and-bolts document, “T+1 Test Approach: Detailed Testing Framework, version 1,” is intended to help firms try out T+1 settlement changes with the DTCC, its subsidiaries, and other industry infrastructures.
This is because testing the T+1 changes is seen as “a critical success factor by the industry from the start of the T+1 initiative,” according to the DTCC.
“In 2022, DTCC worked with the T+1 Industry Working Group (IWG) which was comprised of representatives from all impacted market segments, to begin developing a T+1 test approach. The output of this effort was captured in a high-level test approach document, published on August 10th, 2022,” according to the latest T+1 tome.
“The purpose of the high-level test document was to help member firms understand how the T+1 test would be constructed, to allow them to begin configuring their own test plans and test environments,” according to the new guide. “While the high-level document may help members construct test plans and test environments, DTCC recognized the need to develop more detailed information to help with the execution of the T+1 test.”
After publishing the high-level document, the T+1 IWG Group began work on the more detailed T+1 test document, which offers detailed information on:
- The structure of the T+1 industry test, including information on other industry infrastructures participating in the industry test;
- Testing cycles and testing schedules;
- The DTCC T+1 and T+2 test environments, including information on the role of the different environments; and
- How to connect to the different environments and how to get all the required access in both environments to support testing.
For those working in operations, the new guide drills down on details such as trade execution via exchanges, transaction management tools, and suggested test scenarios that members can use for their own T+1 test plans.
Most of the new paper focuses on the DTCC subsidiaries ITP, NSCC, and DTC, which will have to handle the bulk of the T+1 changes. But DTCC officials say that there “was a desire at the industry level to expand the test to include other industry infrastructures. As such, the test has been expanded to include exchanges (Nasdaq and Cboe) as well as the Options Clearing Corporation (OCC).”
In addition, the DTCC “recognizes that some aspects of the T+1 test are still evolving and that there remains a significant amount of time between now and when testing is scheduled to begin. Furthermore, DTCC recognizes the complexity of a test of this magnitude and the coordination required to ensure the test is successful. As a result, this paper includes information on the testing management provided by DTCC, as well as a process for communicating any testing-related updates, should updates be required,” according to officials.
While the U.S. Securities and Exchange Commission (SEC) has not yet made the regulatory changes needed for T+1, there is an assumption that either sometime during the first quarter of 2024 or sometime during September 2024 will be the final date for implementation. The DTCC “recognizes that testing dates may have to change,” officials add.
“The move to a T+1 settlement cycle has been an ongoing industry effort for well over two years,” says Robert Cavallo, director, clearance and settlement, product management for the DTCC, in a prepared statement. “We are halfway through a marathon and still have a long way to go, but now that 2024 is in sight — whether that ultimate date is determined to be March or September — we must move from planning and development to testing.”
The new 52-page guide can be found here: https://bit.ly/3XSA9vI