08.30.2017
By Rob Daly

Wall Street Readies for T+2

Participants in the US equities, corporate and municipal bonds, and unit investment trust markets will spend the long Labor Day weekend laboring away for the start of T+2 settlement, which is slated to begin on September 5.

The actual switch over to the new code stacks that will support the shortened settlement window will start Friday night after markets close, according to John Abel, executive director, settlement and asset servicing at the Depository Trust & Clearing Corp.

The DTCC, Securities Industry and Financial Markets Association and the Investment Company Institute, who have been coordinating the migration project, have established a T+2 conversion website that they will monitor through the switchover.

They also published a call schedule for the duration of the conversion period which will stretch from September 1 to September 8.

“We also have separate scheduled calls with various regulators,” said Abel. “We will be meeting with them periodically throughout the conversion period to keep them informed of our progress.”

The work that will take place over the weekend represents the culmination of 26 months of work by the industry and an estimated investment of $687 million according to the results of a 2016 industry survey.

“We have not replicated the survey but in conversation with our members they acknowledged that the survey numbers that they provided in December are holding pretty true, said Marty Burns, chief industry operating officer at the ICI.

To put the scope of the project into proper perspective, Tom Price, managing director, operations, technology, cyber, and BCP at SIFMA, views it on par with Wall Street’s Y2K mitigation in the late 1990s.

“The project is changing the market structure that touches every market participant whether they are buy side, sell side, service providers, utilities, big firms, small firms, or custodians,” he said.

Price estimated that ten regulatory bodies or agencies had to change 49 separate rules in order to adopt T+2 settlement. “They had to change rules and guidance that addressed the different aspects of securities lending, trade processing, options assignments, and etc.,” he noted.

The greatest challenge that remains for the industry is handling the physical switchover, according to Abel.

“You can do the best job in interpreting requirements, writing code, and testing it,” he said. “But when it comes to implementing the code, that comes with its own challenges. I think people will be working through those challenges over the long weekend hopefully.”

If anyone belives that there might be a last-minute extension to the T+2 5 deadline or some fallback mechanism in place for unprepared firms, there is not, according to Price.

“It’s not by accident that we put this on the day after Labor Day, the day when summer comes to an end and where, theoretically, there is less activity,” he explained. “There is enough time for firms to work through the weekend to make the necessary changes.”

“Any problem that someone encounters will just have to be fixed and then they will have to move forward,” added Abel. “It similar to any problems in someone’s production environment. The only option is to fix it and move forward.”

The coordinators plan to dub the migration project a success by whether the results are viewed as a non-event. “We’re hopeful that it is a Y2K event where folks wake up Friday of next week and say, ‘Well, that wasn’t hard,’” said Price. “And if that is the response, we have done our jobs well.”

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