Accelerating-The US-Securities-Settlement-Cycle-to-T1-December-1-2021

Accelerating the U.S.
Securities Settlement
Cycle to T+1
Published December 1, 2021
Version 1.0
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Contributors
SIFMA and its members
Tom Price, Managing Director, Techology, Operations, Business Continuity

[email protected]
Anthony Macchiarulo, Senior Associate, Financial Services Operations

[email protected]
ICI and its members
Marty Burns, Chief Industry Operations Officer

[email protected]
The Depository Trust & Clearing Corporation

John Abel, Executive Director, Clearance and Settlement Product Management
[email protected]
Robert Cavallo, Director, Clearance and Settlement Product Management
[email protected]
Deloitte & Touche LLP

Bob Walley, Principal
[email protected]
Roy Ben-Hur, Managing Director

[email protected]
Mara Gauger, Manager

[email protected]
Cody Devine, Senior Consultant
[email protected]
Please visit ust1.org for the latest information on the Industry’s acceleration of the settlement cycle
to T+1.
Copyright © 2021. All rights reserved. 2
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Table of Contents
Executive summary ....................................................................................................................................... 4
Overview of T+1 securities settlement ......................................................................................................... 7
1. Allocations and Affirmations .............................................................................................................. 13
2. Documentation impacts ..................................................................................................................... 15
3. Global settlement implications and FX markets ................................................................................. 17
4. Corporate actions ............................................................................................................................... 19
5. Prime brokerage ................................................................................................................................. 21
6. Securities lending ................................................................................................................................ 24
7. Settlement errors and fails ................................................................................................................. 26
8. ETF creation and redemption ............................................................................................................. 29
9. Equity and debt offerings ................................................................................................................... 31
10. Regulatory impacts ............................................................................................................................. 35
Conclusion ................................................................................................................................................... 37
Appendix ..................................................................................................................................................... 38
Illustrative T+1 Trade Processing Flow Chart .......................................................................................... 38
T+1 Trade Processing Comparison Chart ............................................................................................... 38
Other Guidance ....................................................................................................................................... 38
Revision History ...................................................................................................................................... 44
Table of Figures ....................................................................................................................................... 45
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Executive summary
Introduction
In an effort to reduce risk, strengthen and modernize securities settlement in the U.S. financial markets,
representative organizations under the leadership of the Securities Industry and Financial Markets
Association (SIFMA)1, the Investment Company Institute (ICI)2, and The Depository Trust & Clearing
Corporation (DTCC) 3 initiated an industry change to accelerate the settlement cycle from trade date plus
2 days (T+2) to trade date plus one day (T+1).
Following the February 2021 DTCC whitepaper outlining the need and approach for moving to T+1,
Advancing Together: Leading The Industry to Accelerated Settlement, the U.S. financial services industry
formed an Industry Steering Committee (ISC) and an Industry Working Group (IWG) 4 with the intent of
developing industry consensus for an accelerated settlement cycle transition, including to understand
the impacts, evaluate the potential risk, and develop an implementation approach. The purpose of this
report is to summarize the work conducted by these collective groups and present recommendations
required to be undertaken by the financial services industry to accelerate the U.S. settlement cycle to
T+1.
Industry Steering Committee Recommendations
To support the effort, the ISC engaged Deloitte & Touche LLP (Deloitte)5 to inform the governing bodies,
facilitate the working sessions to analyze the benefits and barriers to moving to T+1, and coordinate
1 About SIFMA. SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global
capital markets. On behalf of our industry’s nearly 1 million employees, we advocate for legislation, regulation and business policy affecting
retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body
to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum
for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the
Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org
2 About ICI. The Investment Company Institute (ICI) is the leading association representing regulated funds globally, including mutual funds,
exchange-traded funds (ETFs), closed-end funds, and unit investment trusts (UITs) in the United States, and similar funds offered to investors in
jurisdictions worldwide. ICI seeks to encourage adherence to high ethical standards, promote public understanding, and otherwise advance the
interests of funds, their shareholders, directors, and advisers. ICI’s members manage total assets of U.S.$29.1 trillion in the United States,
serving more than 100 million U.S. shareholders, and U.S.$9.6 trillion in assets in other jurisdictions. ICI carries out its international work
through ICI Global, with offices in Washington, DC, London, Brussels, and Hong Kong.
3 About DTCC. With over 45 years of experience, DTCC is the premier post-trade market infrastructure for the global financial services industry.
From 21 locations around the world, DTCC, through its subsidiaries, automates, centralizes and standardizes the processing of financial
transactions, mitigating risk, increasing transparency and driving efficiency for thousands of broker/dealers, custodian banks and asset
managers. Industry owned and governed, the firm simplifies the complexities of clearing, settlement, asset servicing, data management, data
reporting and information services across asset classes, bringing increased security and soundness to financial markets. In 2020, DTCC’s
subsidiaries processed securities transactions valued at more than U.S. $2.3 quadrillion. Its depository provides custody and asset servicing for
securities issues from 170 countries and territories valued at U.S. $73.5 trillion. DTCC’s Global Trade Repository service, through locally
registered, licensed, or approved trade repositories, processes 15 billion messages annually.
4
Industry Working Group participation consisted of 800+ subject matter advisors representing over 160 firms from buy- and sell-side firms,
custodians, vendors, and clearinghouses.
5 About Deloitte. As used in this document, “Deloitte” means Deloitte & Touche LLP, a subsidiary of Deloitte LLP. Please see
www.deloitte.com/us/about for a detailed description of our legal structure. Certain services may not be available to attest clients under the
rules and regulations of public accounting. This publication contains general information only and Deloitte is not, by means of this publication,
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with the industry on recommending solutions for the transition. While concerns have been raised
related to the compressed settlement timeframe and several open issues remain to be solved, for
example, settlement of offerings of new securities, the ISC recommends, and is committed to, a
transition to a T+1 settlement cycle. The specific recommendations from the ISC are summarized below:
Table 1: T+1 Settlement Recommendations
No. Topic Recommendation

• Encourage allocations6 by
7:00 PM ET on trade date (T) to ensure that firms have sufficient time
to process affirmations by 9:00 PM ET on T
Allocations and • Change the affirmation deadline from 11:30 AM ET on T+1 to 9:00 PM ET on T
1
Affirmations • Adopt technology (e.g., DTCC’s ITP Central trade matching system (CTM) and/or messaging
protocols (e.g., FIX and SWIFT) to automate the communication of allocations and CTM’s Match
to Instruct to facilitate more timely trade affirmation
• Advocate for and promote the broad scale adoption of e-delivery as the default receipt method
for trade documentation (e.g., trade confirmations, prospectuses) with the option for clients to
Trade
2 request paper documentation post-settlement
documentation
• Remove rule references that trigger the Electronic Signatures in Global and National Commerce
Act (ESIGN) and therefore inhibit clients from receiving e-delivery of investor documents
• Promote and socialize new T+1 settlement trade processing timelines in the U.S. and among
international investors to reduce settlement issues, including Foreign Exchange (FX) conversion
Global
transactions and allocations
settlement
3 • Request that wholesale FX market participants conduct their own analysis related to their
implications
internal operating models and present-day global practices to identify changes and
and FX markets
enhancements that would need to be implemented in order to facilitate T+1 FX where needed
for U.S. T+1 settlement
• Coordinate with regulators and exchanges to align the ex-date with the record date for regular-
way corporate actions
Corporate
4 • Adopt SWIFT7 messaging, or other automated means, across the corporate actions lifecycle to
actions
increase efficient communication by industry participants related to corporate action events
• Industry to evaluate whether the cover/protect period should be eliminated
• The SEC should change the required deadline specified in the Prime Brokerage (PB) No Action
letter for executing brokers to inform the prime broker of trade details from the morning of the
next business day after trade date (which would be too late to effect settlement in CNS on T+1)
to a time on the evening of trade date that would meet the National Securities Clearing
Corporation (NSCC) evening cutoff time for matched and affirmed trades to flip into T+1
Prime settlement in NSCC’s Continuous Net Settlement (CNS)
5
brokerage • Prime brokers, executing self-clearing firms, and clearing firms of an introducing broker acting
as an executing broker should identify and implement amendments to their existing contracts
regarding the prime brokerage arrangement (e.g., including standardized documents, such as
the Form 1508), to reflect any necessary changes to timing for trade notification and
affirmation, and should consider whether any changes are necessary to disaffirmation
deadlines in light of the T+1 environment
rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for
such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any
decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible
for any loss sustained by any person who relies on this publication.
6
For the purposes of this paper, “allocations” is defined as the allocation sent to an Executing Broker from order placer instructing how to
allocate a trade amongst the Clearing Brokers/Custodians/Prime Brokers.
7 A SWIFT (Society for Worldwide Interbank Financial Telecommunication) message combines ISO code with SWIFT connectivity to create a
standard and automated communication flow between investment managers, custodian banks, local agents, and market information vendors.
8
https://www.sifma.org/wp-content/uploads/2017/08/Prime-Brokerage-_Prime-Brokerage-Agreement-Form-150.pdf
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• The current timing for recall issuances (e.g., as late as 3.00 PM ET on T+1), will have to be
reconsidered to mitigate an increase in fail rates. The more notice broker-dealers have to
return securities, the more likely they will be returned in time for settlement
Securities
6 • Promote the widespread adoption and utilization of tools to streamline the recall, contract
lending
compare, corporate action, buy-ins, and rebate interest collection processes
• The SEC should update existing interpretive guidance about the required cutoff time for a
securities lender to recall loaned shares in order to mark its sell trade “long”
• Promote greater adoption of Standard Settlement Instructions (SSIs)9
• Encourage market participants to identify key drivers for settlement fails and to address those
Settlement where appropriate through automation
7
errors and fails • Encourage market participants to:
− Adopt policies and procedures for timely updates to SSI reference data prior to settlement
− Repair errors at the root cause to avoid future settlement issues
• Authorized Participants (APs) should use real time messages coming out of Universal Trade
Exchange
Capture (UTC), to mitigate issues with the new proposed timing of the CNS exemption cutoff at
Traded Fund
8 (ETF) creation 10:30 PM ET
and • Adopt the use of collateral processing tools, such as NSCC’s collateral process and other
redemption automated tools, to centralize the collateral process for global components
• Retain the exception in Rule 15c6-1(c) but shorten the applicable period to T+2
9
Equity and debt • Retain the exception in Rule 15c6-1(d) to allow debt and other offerings to have the ability to
offerings opt for extended settlement
• Continue to engage the regulatory community to ensure that rules and regulations that identify
regular way settlement as greater than T+1 be changed, including the Securities Exchange
Regulatory
10 Commission (SEC) capstone rule 15c6-1(a) of the Securities Exchange Act of 1934 (the
impacts
“Exchange Act” and the associated rules derived from it, to create regulator certainty for
market participants
In addition to the aforementioned recommendations, and not to understate the effort to move to a T+1
environment, the industry has to embrace adoption of technology and software to achieve optimal
settlements in a T+1 framework. This will require thorough analysis and solutioning to address any
potential settlement fails including those during high volatility/volume market periods. The realities of a
T+1 execution and settlement process for global participants will require a rethinking of trade execution,
processing, financing, payments, and settlements. Migration to a T+0 settlement environment was
discussed broadly by the IWG members, and a determination was made that T+0 represents a
fundamental change in post trade processing and will require the reworking of existing settlement
systems, including but not limited to, the elimination of any remaining batch processes.
Migration Timeline
In consideration of the recommendations above and the necessary supporting activities to
successfully migrate the industry, the ISC recommends migration from T+2 to T+1 for U.S. securities
markets in Q1/Q2 2024.10
The timeline below provides market participants with the time needed to assess firm-level required
changes and allocate resources and budgets accordingly to support the migration including the creation
of an early 2023 comprehensive testing plan. In order to move forward with a T+1 settlement cycle, the
industry will depend on regulatory certainty. Figure 1 below assumes the necessary regulatory changes
will be adopted in time to implement T+1 settlement Q1/Q2 2024. The industry believes that after
9 Instructions agreed to in advance by the counterparties and used as standard trade instructions between the counterparties.
10
The specific migration date to move to T+1 is to be determined.
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regulatory certainty and guidance is achieved, a lengthy and necessary amount of time will be required
for T+1 implementation.
Figure 1: Proposed industry migration timeline
Overview of T+1 securities settlement

Background on Current Industry Efforts
On September 5, 2017, the securities industry successfully transitioned from T+3 to T+2 as a result of
thorough planning and coordination among industry participants across the settlement ecosystem. This
included a schedule of consistent industry calls, a robust communication program, issuance of various
publications (e.g., SIFMA and ICI T+2 Industry Implementation Playbook), a targeted industry outreach
program with a disciplined testing regime, and the broad support of the industry and the regulators. The
transition from T+3 to T+2 occurred over a period of approximately five years.
The same industry consensus, strong organizational leadership, and communication and coordination
among industry participants will once again be required to successfully migrate U.S. securities
settlement from T+2 to T+1. As a demonstration of its commitment, the ISC and the IWG have
participated in daily, remote working sessions over the past spring and summer with the goal of
understanding current T+2 settlement processes and developing consensus on the associated risks and
benefits of an anticipated accelerated settlement cycle, including identifying challenges to adopt T+0
(i.e., real time or end of day settlement) in the current state. Hundreds of hours have been committed
to the present-day effort and working sessions have averaged 175 to 250 participants, across buy-side
and sell-side, service, and system providers (inclusive of transfer agents), and custodian banks.
Overview of T+1 Securities Settlement
The transition from T+3 to T+2 enabled the industry to shred roughly a third of post-trade settlement
processing time for U.S. securities that are cleared and settled through DTC. The proposed transition to
T+1 is anticipated to reduce the current T+2 processing time by half. Figure 2 below illustrates the T+1
settlement trade flow, including participants and proposed changes for the 24-hour cycle:
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Figure 2: Illustrative T+1 settlement trade flow
The transition from T+3 to T+2 included and impacted a range of DTC eligible cash products. Moving
from T+2 to T+1 should include a similar product scope, including, inter alia, equities, corporates,
municipals, and UITs. For the purposes of a T+1 settlement cycle, Fed eligible securities should be
considered out of scope. The impact of a migration of cash securities settlement to T+1 on derivative
products will also be reviewed as part of accelerating the settlement cycle to T+1. Further, the products
that are considered in scope for purposes of T+1 are subject to change as the IWG works toward the T+1
migration timeline.
Benefits of a T+1 Settlement Cycle
The industry believes that moving to a T+1 settlement cycle will increase the overall efficiency of the
securities markets, mitigate risk, create better use of capital, and promote financial stability, provided
that the appropriate balance is achieved between increasing efficiencies and mitigating risk. These
benefits will be realized through direct and indirect means by both industry participants and investors as
much of the settlement infrastructure will require reengineering given the compressed timeframes.
Below is a summary of the primary benefits anticipated by adopting T+1 settlement:
• Reduction of risk, particularly during periods of high volume and volatility: As the volume of
unsettled trades over a single trading day and the time between trade and settlement is
reduced, there will be a reduction in systemic, counterparty, and operational risk across the
settlement ecosystem, particularly in periods of market volatility. Furthermore, T+1 settlement
preserves the benefits of settlement netting at NSCC and, thereby, significantly reduces the
volume of securities and currency required to be moved across markets on any given trading
day.
• Reduction in liquidity requirements: With firms’ market and counterparty exposure over the
settlement period reduced, there is a reduction in margin requirements posted to NSCC by its
members. This reduction will allow broker-dealers to better manage their capital and liquidity
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risks and better utilize their available capital. For investment funds, T+1 will align the settlement
cycle of U.S. mutual fund shares with the portfolio securities settlement cycle, thus improving
cash and liquidity management.
• Capital and operational efficiencies: Capital and operational efficiencies can be grouped into
three categories: infrastructure modernization, standardization of industry processes and
reduction in costs. Each category is explained further below:
− Infrastructure modernization: Through technology adoption, the automation of manual

processes will significantly reduce operational risk, increase productivity, and reduce
friction for market participants. The migration to T+1 provides opportunities to:
▪ Accelerate industry adoption of Straight-Through Processing (STP) and re-
engineer certain processes. For example, enabling match-to-instruct capabilities
for trade affirmation and confirmation, will eliminate redundant processes, save
time and expenses, and reduce manual errors
▪ Optimize margin calculations and reduce margin requirements among
customers, brokers, and clearinghouses (due to the recommended changes in
the allocation11 and affirmation timelines)
− Standardization of industry processes: By adopting the recommended best practices in
this report and implementing behavioral changes across the industry, market
participants have an opportunity to standardize and synchronize processes in order to
facilitate greater transparency and real-time / near-time access to critical data across
the financial ecosystem. Specifically, the migration to T+1 settlement may require
standardization for certain industry processes in order to meet updated timelines,
including to:
▪ Coordinate processing timelines and formalize and adopt industry best practices
to facilitate optimized information sharing and data transfers between
counterparties, particularly for critical reports or deadlines (e.g., sharing
intraday trade allocation data between counterparties)
▪ Formalize SLAs between counterparties for as soon as possible allocation
submissions to facilitate more timely allocations from block trades
▪ Standardize processes for prime broker customer onboarding to enable
automated capabilities for recurring, time-sensitive processes (e.g., Form 1
Schedule A)
▪ Develop an automated and standardized straight-through settlement processing
path for unaffirmed institutional transactions and disaffirmed trades
▪ Review and standardize corporate actions processes, including the delivery of
corporate action agreements to SROs and exchanges
− Reduction in costs: While there may be increased buy-ins, earlier up-front close outs,
and up-front implementation costs to transition the industry to T+1, the industry
foresees long-term cost reduction for market participants, and by extension, costs borne
by end investors, given the benefits of moving to T+1 settlement
11 Forthe purposes of this paper, “allocations” is defined as the allocation sent to an Executing Broker from order placer instructing how to
allocate a trade amongst the Clearing Brokers.
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Considerations on T+1 Settlement
Because of the benefits mentioned above, the industry is widely supportive of the migration to T+1
settlement. However, the industry believes that any migration plans should be designed to address the
following considerations:
• Possible Reduced percentage of trades that timely settle through NSCC’s CNS system. The
compressed timeframe for market participants to determine and instruct trade allocations and
settlement instructions, and for PB to receive and process trade instructions from PB clients,
could lead to a lower percentage of PB trades that are affirmed for timely settlement in NSCC’s
CNS system. Any migration plan should contemplate the challenges and lead time necessary for
market participants, including brokers, investors, and custodial banks, among others, to upgrade
their practices, systems, and operational processes to maximize the number of trades that will
flip into CNS, which provides important netting, settlement and other risk mitigating benefits to
the industry.
• Possible Increased risk of fails. The factors mentioned above that could lead to a reduced
percentage of trades that will timely settle through NSCC’s CNS system, could, along with the
abbreviated timeframe for borrowers to source securities to return to securities lenders, lead to
an increase in fails to deliver. Any migration plan should contemplate the challenges and lead
time necessary for market participants, including brokers, investors, and custodial banks, among
others, to upgrade their practices, systems, and operational processes to minimize the number
of trades that could fail as a result of the compresses timeline.
• Equity and debt offerings. Equity offerings involve a myriad of unique issues that have
historically led the Commission to allow them to have the ability to settle later than the
standard securities transaction settlement cycle found in Rule 15c6-1(a), as reflected in the
exception provided in 15c6-1(c). Similarly, due to the unique nature of many debt offerings and
the documentation involved, they frequently settle on an extended basis in reliance on the
exception found in Rule 15c6-1(d).
Considerations on T+0 Settlement
As the industry analyzed the migration to T+1 settlement, the IWG also considered the impacts and
benefits of moving to T+0 settlement.12 The ISC and IWG concluded, by consensus, that T+0 is not
achievable in the short term given the current state of the settlement ecosystem. A move towards a
shortening of the settlement cycle to T+0, would require an overall modernization of current-day
clearance and settlement infrastructure, changes to business models, revisions to industry-wide
regulatory frameworks, and the potential implementation of real-time currency movements to facilitate
such a change.13 Additionally, the IWG stresses that the burden of adoption for such technologies would
be disproportionately borne by small-/medium-sized firms who currently are reliant on manual
processing or legacy systems and may lack the financial and technical resources to modernize their
operational infrastructure so rapidly. With ever an eye toward future innovation, the industry will
12
As defined in this report, T+0 settlement refers to trade date or end-of-day settlement. While the IWG acknowledges that certain real-time
settlement technologies have proven effective in pilot scenarios and for certain product classes and trading counterparties, the IWG does not
consider these to have the widespread adoption in the current state in order to effectively consider these solutions.
13 Emerging technologies, such as distributed ledger technology (DLT), need to mature to industrial strength and gain general industry adoption
across the spectrum of market participants in order to be considered an effective solution for optimizing securities settlement.
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continue to monitor technology developments within the settlement ecosystem and implement cost-
effective solutions, where possible, as the industry progresses toward T+1 implementation.
Below are some of the key areas that the IWG has identified would be significantly impacted in a T+0
environment:
• Reengineered securities processing. T+0 settlement would require the redesign of many
securities processing functions, including Institutional Trade Processing, ETFs processing,
options, margin investing, securities lending, FX markets, and global settlements across
jurisdictions to meet the regulatory, operational, and contractual requirements.
• Securities netting14. Significant changes to NSCC securities netting may be required in order to
maintain the benefits that the process provides and may require large volumes of securities and
cash to move throughout the trading day, which will likely increase the risk of trade errors and
subsequent settlement fails.
• Funding requirements. Funding trades would require foundational changes, such as requiring
The Federal Reserve’s payment systems to maintain services for longer periods of time
throughout the day to determine funding requirements between counterparties, particularly in
order to post funding to clearinghouses to facilitate services. Retail investors may be required to
pre-fund accounts given time required to fund ACH and wire transfers from consumer banks to
securities accounts and the investment of idle cash would be difficult.
• Securities lending. The securities lending process, which requires that securities lenders, their
custodians and/or securities lending agents to recall loaned securities when such shares are
sold, will not be able to operate in a T+0 environment as it does today and would require an
extensive infrastructure and operational overhaul.
• Prime brokerage. Current prime brokerage processes are not set up to capture allocations,
calculate margin requirements, and ensure margin accuracy prior to Fedwire deadlines on trade
date, and facilitate trade reporting and disaffirmations given sequential dependencies between
counterparties.
• Global settlement. Foreign counterparties and investment vehicles with foreign securities
exposure anticipate risk disruption given the asynchronous timing of open market hours across
jurisdictions. Foreign investors may be required to pre-fund cash positions and securities prior
to trading to meet contractual requirements and currency exchange (FX) could be problematic.
• Primary offerings, derivatives markets, and corporate actions. Ancillary securities processing
activity related to secondary market trading will require reengineering to execute contracts and
allocations across asset classes under compressed timeframes. Often, these processes span
multiple trading days given their nuances and the legal and contractual obligations may not, and
in the case of primary offerings cannot, be satisfied within the trading day window for end-of-
day settlement.
How to use this report
This report focuses on outlining the current considerations and recommendations for migrating to a T+1
settlement cycle at an industry level. It is intended for industry participants to distribute to their internal
14
See DTCC definition on netting here
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business, operational, risk management, and technical functions for review in order to understand the
impacts of T+1 settlement on these respective functions. In reading this report it is structured in the
following ways: sections have a brief business “background” on impacts of the topic and T+1 impact,
“recommendations” on how to solve for T+1 settlement, and “considerations” which are less specific
and contain insights for firms on how T+1 may impact them.
Firms should work with their counterparties, vendors, regulators, and clients to better understand their
internal impacts related to timing requirements / deadlines, system requirements, system
improvements, and process changes in preparation for this migration. Additionally, firms should
continue to engage in industry discussions with SIFMA, ICI, and DTCC to remain updated on information
regarding this initiative as the IWG will continue to release additional information as it becomes
available.
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1. Allocations and Affirmations
Background
The allocation of institutional trades is one of the key post-trade processing steps. Once trades are
allocated15 at the account level, the affirmation and confirmation process begins. Current processing
shows that approximately 20% of allocations occur throughout the trading day with the remaining 80%
of allocations occurring after market close on trade date.16 It is important to note that the confirmation
and affirmation process can only occur once allocations have been completed. Given that most
allocations occur post-market close, the current affirmation timeline is set at 11:30 AM ET on T+1. This
will need to change in order to meet a T+1 settlement cycle. In a T+1 settlement cycle, the group agreed
that a new affirmation cut off should be 9:00 PM ET on trade date. Both U.S. and non-U.S. institutional
investors will need to adopt process and behavioral changes to meet this new cut-off time.
Considerations
To meet a new affirmation cut-off time of 9:00PM ET on trade date, the IWG recommends that
allocations are made as soon as practicable after an order is executed to ensure members have
sufficient time for affirmation processing. Market participants located outside of the U.S. may need to
consider pre-allocating trades prior to the close of their business day or the complete execution being
filled to ensure the allocation process is completed.
Encouraging trades to be affirmed throughout the trading day increases the time firms have to process
allocations and increases the likelihood of timely affirmation. Trades that are affirmed before 9:00 PM
ET on T would be eligible for DTC’s ID ANE settlement process, and for Prime Broker transactions, NSCCs
CNS service. Following the affirmation process, the affirmed trades will be sent from DTCC’s ITP service
to DTC and NSCC for processing in DTC’s Night Cycle Batch process which will start on the evening of T
(proposed start time at 11:30 PM ET). Moving to a T+1 settlement cycle, which involves compressing the
allocation timeframe, could lead to an increase in trade breaks if the allocations are not completed in a
timely manner.
Recommendations
The IWG recommends the following for the institutional trade allocation and affirmation process:
• Encourage allocations by 7:00 PM ET on T to ensure that firms have sufficient time to process
affirmations by 9:00 PM ET on T.
• All firms submit allocations as soon as possible following trade execution.

− Identify root causes and educate industry participants to promote intraday allocation
processing
• Change the affirmation deadline from 11:30 AM ET on T+1 to 9:00 PM ET on T.
15 Forthe purposes of this paper, “allocations” is defined as the allocation sent to an Executing Broker from order placer instructing how to
allocate a trade amongst the Clearing Brokers
16
Percentages derived from DTCC internal analysis.
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− DTCC’s ITP will use the following steps for institutional transactions unaffirmed by the
9:00 PM ET deadline:
▪ By 9:00 PM ET on T, DTC and NSCC will receive from ITP affirmed and un-
affirmed institutional transactions and include them for processing through
DTC’s ID ANE service (Automatically subjecting un-affirmed institutional
transactions to DTC’s ID ANE process represents a change from the current
institutional transaction process and will be offered as an option to members)
▪ DTC Participants will need to authorize or exempt these transactions by 10:30
PM ET on T
▪ The authorized transactions will be introduced as deliver orders into DTC’s Night
Cycle process which will start at 11:30 PM ET
▪ These transactions will be subject to DTC’s Receiver Authorization Deliver (RAD)
service and additional DTC Risk Management controls as they are today
▪ DTC will provide output, related to these transactions processed, at 1:30 AM ET
on T+1
• Update legacy technology systems and processes to increase allocations and affirmations by
deadlines.
• Encourage the industry to get affirmed transactions into the DTC night cycle on T.
− Adopt technology (e.g., DTCC’s ITP CTM) and/or messaging protocols (e.g., FIX) to
automate the communication of allocations and CTM’s Match to Instruct to facilitate
more timely trade affirmation
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2. Documentation impacts
Background
There are several different types of industry documents that reference securities settlement which will
need to be assessed when changing the settlement cycle to T+1. These documents may be categorized
into three broad categories: Transactional, Administrative, and Agreements. For example, trade
confirmations as required by SEC Rule 10b-10 under the Exchange Act are required to be provided by
broker-dealer to the customer at or before the settlement of the transaction. In establishing a new T+1
settlement cycle, the transactional, administrative and agreement documents will need to reflect T+1
settlement. The change will require documentation language updates and will impact resourcing and
delivery processes (including the associated technology vendors) for both buy-side and sell-side firms.
The following list are examples of documents that will need to be reviewed before migrating to T+1
settlement:
• Transactional Documents
− 10b-10 confirmations
− Corporate actions notifications
− Notices of execution
− Qualified Institutional Buyer (QIB) documentation
− Product issuance documents for rights and warrants
− Stock loan recall notices
− Customer and internal settlement notices
− Client account statements and disclosures
• Administrative Documents
− Balance restriction
− New accounts
− Subscriptions
− Utility, vendor, and service bureau product guides
− Accounting policies
− Internal controls and compliance
− Trading, liquidity, cashflow models
− Client education / awareness brochures
− Internal training material
− Internet and intranet information
− System administrative messages (e.g., CNS ID Net announcements, Transfer Agent
announcements)
• Agreements
− Client account agreements
− Fund prospectus and statements
− Letters of transmittal for voluntary corporate actions
− Agreement between PB and EB (typically Form 150)
− Securities loan agreements (e.g., MSLA, GMSLA, and ISLA)
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− Reinvestment agreements and DRIP documents
− Trading relationship agreements (e.g., ETFs, Swaps, ESOPs)
Considerations
Meeting the current regulatory requirements regarding documentation delivery (i.e., confirmations) will
be a challenge in a T+1 settlement cycle. Current SEC rules require firms to deliver documentation by a
defined time to serve as the default statement of record. Firms may deliver such documentation on
paper or electronically. However, clients must opt-in to receive electronic delivery thus paper delivery is
the default delivery mechanism. In a T+1 environment, firms are going to be challenged to meet the
timing requirements for physical delivery of confirms due to the constraints on printing and postal
delivery. As a result, the industry believes that SEC rules should allow electronic delivery of
confirmations and other documentation to be the default method of delivery to ensure that investors
receive documentation on a timely basis consistent with current rules.
Firms should begin to take an inventory of documentation that will be in scope and assess whether
changes are necessary internally, to meet regulatory requirements with external parties. Additionally,
firms will need to enhance processes and work with vendors where necessary to comply with
confirmation delivery requirements. In a T+1 settlement cycle, these compressed timelines will be a
challenge to meet with current paper distribution methods (e.g., the U.S. postal service).
Recommendations
The IWG supports e-delivery as the default standard for delivering transaction documents to customers.
In addition, the group supports further digitization, such as the basic PDF delivery of confirms and
statements, in leveraging technology for these processes. This change would require the support of
regulators to change the existing regulations regarding documentation delivery. Such regulatory change
would need to address the following key areas:
• Support “access equals delivery” as a default for communication to investors (e.g., statements,
prospectuses, agreements), which would satisfy the “delivery” requirement for securities
documentation.
• Clarification on what constitutes “delivery” for electronic confirmations in accordance with
SEC Rule 10b-10 under the Exchange Act.
• Remove rule references that trigger the Electronic Signatures in Global and National Commerce
Act (E-Sign Act) and therefore inhibit clients from receiving e-delivery of investor documents.
− E-Sign Act may inhibit market participants, due to a potential requirement related to the
re-confirmation of the e-delivery designation for documents required to be delivered “in
writing”
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3. Global settlement implications and FX markets
Background
The U.S. dollar (USD) FX market is the world’s largest and most liquid financial market. As an integral
part of the global economy, the effective and efficient exchange of currencies underpins the world’s
financial system. In addition to playing a vital role in cross-border trade and payments, the FX market
supports currency exchange needs involved in the purchase and sale of U.S. securities in the global
capital markets. FX market participants engage in currency exchange transactions across many different
jurisdictions and time zones. It is, therefore, important to consider the implications of T+1 settlement on
the FX markets.17
Currently, spot FX transactions typically settle via the exchange of two payments in two different
currencies on T+2.18 In certain situations, a spot FX transaction is executed by the buyer of a security
denominated and sold in a currency different than the purchaser’s local currency in order to obtain the
requisite currency needed to purchase the security. For these situations, the buyer will execute the spot
FX transaction to buy the amount of currency required to purchase the security to make delivery by
settlement.
Considerations
In consideration of the processes related to global settlement implications and FX markets, the IWG
notes current considerations that will require attention given the migration to T+1 settlement:
FX Settlement Risk – With settlement of spot Forex transactions generally at two days post execution,
accelerating U.S. settlement to T+1 raises the risk that transaction funding dependent on FX settlement
may not occur in time. Unilateral cancelation deadlines by currency should be considered; service
agreements between corresponding banks will need to agree and identify the cancellation cut-off time
to manage risks effectively, within a window that affords T+1 settlement.
The period of irrevocability – the period between the unilateral cancellation deadline for the sold
currency and actual receipt of the bought currency – can last up to two to three days at present, more if
weekends or holidays fall in between. Depending on arrangements the fund manager may have in place
with its transacting banks, alternative sources of funds to settle U.S. trades on T+1 may need to be in
place, whether liquidating other readily available assets, pre-funding their trades in USD, or borrowing
USD to meet the U.S. settlement deadline, which could lead to increased costs to settle USD
transactions and deter trading.
Collateral / Liquidity Risk – FX settlement will need to be considered to meet the obligations of U.S. T+1
trade settlement. Market participants trading in T+2 jurisdictions still face the issue of having to ensure
funding is available in time to settle their U.S. trades at T+1. Alternatively, uncertainty about collateral
for settlement may mean they forego transacting in U.S. markets or work on alternatives in order to
comply with the accelerated settlement requirements.
17 While FX transactions settle T+2 today, many transactions are required to settle T+1 (or even T+0) in the current state. As such, capabilities
exist to adopt T+1 settlement processes.
18
With some exceptions where currency pairs already settle on a T+1 basis as standard (for example, U.S. and Canadian dollars).
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The ability to raise collateral for U.S. trade settlement may become a more acute issue in scenarios such
as a rebalancing, where market participants may have to sell non-U.S. positions a day before purchasing
USD shares to ensure the funding from sales is received in time for T+1 settlement of their U.S.
purchases. This could leave them underinvested for a trading day and could have a significant impact on
investor returns unless fund managers develop other strategies to account for the timing differences.
International Banking and Market Coordination Issues – When the U.S. migrated from T+3 to T+2
settlement in 2017, a majority of international markets were already on a T+2 settlement cycle, making
the transition much easier and resolving misalignment issues due to a longer U.S. settlement cycle.
However, the move from T+2 to T+1 now creates a significant misalignment scenario for the U.S., as
many international markets will remain at T+2 with no current announced plans to accelerate the
settlement cycle.
For securities interlisted between two separate markets, considerations and adjustments will have to be
made as it relates to margin and entitlements. In situations like this, and where applicable, it would be
optimal for divergent markets to align settlement conventions. For example, Canada, the market with
the most interlisted securities with the US, has announced plans to move to T+1 in concert with the U.S.
The rigid deadlines of the banking system pose a significant risk to timely settlement in a T+1
environment, as do simple time zone or calendar differences that otherwise can be accommodated in a
T+2 settlement cycle. Foreign banking deadlines and cutoff times for transaction processing in related
markets must be carefully re-examined to ensure activity can be harmonized in an accelerated U.S.
settlement framework. Alternatively, U.S. market participants may need to consider the reduction or
curtailment of their foreign market participation.
Recommendations
While certain open questions remain regarding the need to pre-fund some securities transactions (due
varying settlement cycles in different time zones), the IWG recommends wholesale FX market
participants conduct internal analysis of their global operating model, and current processes to identify
any changes and/or enhancements that would need to be implemented in order to facilitate timely FX
transactions where needed for T+1 settlement. To support these analyses, the IWG recommends firms
reference their current processes related to T+1 settlement of certain securities (e.g., U.S. Treasuries) as
potential models for expanding T+1 settlement to other asset classes.
Additionally, the IWG recommends:
• Engagement amongst the Federal Reserve and global Central Banks, market infrastructure
providers and vendors, and industry groups (e.g., FXC, GFXC) should aim to understand how
behavioral changes might best be introduced and reinforced in the industry.
• Continued coordination and engagement among global, wholesale FX market participants to
introduce T+1 settlement without disruption, particularly for non-U.S. based investors given
time zone differences.19
19 ASIFMAacknowledges the pressure that may arise for AsiaPac to align with the United States. Additionally, ASIFMA indicates certain
operational constraints given regulatory ID market requirements imposed.
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4. Corporate actions
Background
Corporate actions, specifically income distributions that occur on securities which are traded at
securities exchanges such as the NYSE, NASDAQ and FINRA OTC, will trade either with the distribution or
without the distribution near the time of the event’s record date. To determine when the security is
traded without the distribution, the securities exchange will establish (or referred to as “rule”) an ex-
dividend date (ex-date) where the price of the security is adjusted by the amount of the distribution.
Typically, the ex-date will occur prior to the record date of the event, and in a T+2 settlement cycle, the
ex-date falls on the trading day before record date. Regular way ex-date occurs when the ex-date is
established prior to the event’s record date. A move to T+1 settlement will subsequently move the ex-
date to the day of the record date of the event.
There are instances where, depending on the rate of the distribution relative to the price of the security,
the ex-date is established after the event’s record date. In these cases, the ex-date is typically ruled after
the event’s payable date, and this is often referred to as “irregular ex-date” or “late ex-date”. To
account for trading activity that occurs between the record date and the ex-date, there is an interim
monitoring period that continues to determine investor eligibility in the distribution. This interim period
of activity, known as the due bill period, culminates on the due bill redemption date, the final day of
interim tracking. In the current T+2 settlement cycle, due bill redemption date is set to ex-date plus one
(1) trading day.
A T+1 settlement cycle will likely impact trading practices around the expiration dates of certain
voluntary corporate action events, including tender offers, exchange offers, and rights subscriptions. The
issuer often offers a guarantee of delivery that allows investors to purchase securities on the offer’s
expiration date and still participate in the offer while their securities are in the process of settling. This is
also known as the cover/protect period where purchased yet-to-settle securities are instructed in the
form of a “protect” and then that protect is subsequently “covered” once the securities settle. Typically,
this cover/protect period is aligned to the market’s settlement cycle; however, there are exceptions
where the time to cover a protect may be shorter or longer. The period is ultimately defined by the
issuer and described in detail in the event’s offering materials. In a T+2 settlement cycle, the
cover/protect period is often expiration date plus two (2) trading days.
Considerations
In consideration of the processes related to corporate actions, the IWG notes current challenges that
will require attention given the migration to T+1 settlement:
• The securities exchanges each have their own defined set of rules that govern the establishment
of the ex-date, and should work together to standardize the processes for market participants.
• The securities exchanges should review how the migration to T+1 settlement, and the
subsequent shortening of corporate action event dates, impact pricing on traded securities,
including tender offers, exchange offers, and rights subscriptions.
• The cover/protect period is currently inconsistently applied for many offers and is a current
challenge such that member participants have discussed eliminating the cover/protect period
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altogether as it increases the need for collateral financing to cover transactions during this
period.
• Capital markets teams generally need advanced notice of actions (ideally, T+3 notice) to guide
the inclusion or exclusion of securities in ETF baskets and adjustments to this timeline, from
notification to inclusion, could potentially increase cash in lieu of settlement.20
• Some firms lack automated processes for reconciling unsettled trades by the election deadlines
and, as such, rely on manual reconciliation to establish eligible holdings data prior to distribution
deadlines.
Recommendations
Based on the above considerations, the IWG recommends the following:
• Advocate for standardized rule set changes for moving the ex-date to the day of the record date
for regular-way corporate actions as well as for recalls and dividend reinvestment programs.
• Industry to develop recommendations related to:
− Whether or not the cover/protect period should be eliminated altogether
− Standardizing Security Payment Order (SPO) integration processes in the T+1
environment with customizable technology to eliminate or significantly reduce the
reliance upon the manual broker-to-broker communication to disseminate SPO
information related to trade fails
− Exploring opportunities for a vendor solution21 where both counterparties can post the
original fails and transform these fails automatically into an SPO
− Updating securities master reference data to account for same-day security symbol or
share changes coinciding with the pay date of corporate actions to avoid increases in
cancel / rebook scenarios
• Develop a uniform corporate action process, which would eliminate contract compare breaks
and resulting recall issues and drive adoption of SWIFT22 messaging across the corporate actions
lifecycle to increase efficient communication by industry participants related to events,
elections, payments, and reconciliations between projections and payment for investment
managers and custodians.
• Identify best practices to reduce the amount of contract compare breaks that are the result of
corporate action events to decrease the potential fails in a T+1 settlement cycle.
20 A lack of SPO integration could, when combined with a T+1 timeline, exacerbate stress on manual broker-to-broker communication, and by
default, trade fails systemically.
21
This system could be integrated with a current service provided by DTCC. The Claims Connect tool could be adapted to capture a large portion
of the fails that cycle through the market, which will significantly reduce the need for manual SPO communication. This technological
enhancement has been discussed at a high level by stakeholders from DTCC and aligns with their discussions around the creation of a
transaction warehouse.
22 A SWIFT (Society for Worldwide Interbank Financial Telecommunication) message combines ISO code with SWIFT connectivity to create a
standard and automated communication flow between investment managers, custodian banks, local agents, and market information vendors.
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5. Prime brokerage
Background
A PB provides its clients with a set of trade facilitation services including trade settlement, where
Executing Brokers (EBs) are instructed to settle trades with the prime broker. In a prime brokerage
arrangement, self-clearing, and clearing firms for EBs, are instructed to settle some, or all, of a PB
client’s trades with the PB. PBs provide other trade services, including custody, settlement, locating
securities to settle potential short sales, margin financing, asset servicing, and providing back-office
technology.
The confirmation and affirmation processes between EBs and PBs are an essential function of trade
processing in the prime brokerage arrangement. Under prime brokerage, trades details for trades that
will settle, between EBs and PBs are sent to DTCC’s ITP service for matching and affirmation. Timely
affirmed PB trades are typically forwarded to NSCC for netting in NSCC’s CNS service if the security is
eligible for CNS processing as a trade between the EB and PB.
Under the SEC’s Prime Broker, No Action Letter23, a PB has the ability to disaffirm PB trades of a client
alleged to the PB by the EB as a means of managing its risk. When ITP receives a disaffirmation
instruction from a PB, it generates new offsetting settlement instructions and sends the new
instructions to NSCC to offset the original affirmed trades already submitted to NSCC for CNS processing.
If disaffirmations occur, the EB then is responsible for recording the original trade in an account in the
name of the customer.
In a T+1 settlement environment, the IWG proposes that the SEC change the required deadline specified
in the Prime Brokerage No Action letter for executing brokers to inform the prime broker of trade details
from the morning of the next business day after trade date (which would be too late to effect
settlement in CNS on T+1) to a time on the evening of trade date that would meet the NSCC evening
cutoff time on trade date for matched and affirmed trades to flip into T+1 settlement in NSCC’s CNS.
In addition, the IWG proposes that, PBs, executing self-clearing firms, and clearing firms of an
introducing broker acting as an EB identify and implement amendments to their existing contracts
regarding the prime brokerage arrangement (e.g., including standardized documents, such as the Form
15024), to reflect any necessary changes to timing for trade notification and affirmation, and should
consider whether any changes are necessary to disaffirmation deadlines in light of the T+1 environment.
Considerations
The following are considerations relating to PBs that the IWG believes firms should take into account
when reviewing prime brokerage processes internally. These considerations are followed by
recommendations in the next section.
• Trade affirmations. The timely of affirmation of trades by prime brokers is a critical step in the
clearing and settlement process. Timely affirmed trades ensure timely settlement in NSCC’s CNS
system, ensuring the risk-reducing and operational benefits contemplated by the national
23 https://www.sec.gov/divisions/marketreg/mr-noaction/pbroker012594-out.pdf
24
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system for clearance and settlement that was developed in the aftermath of the “Paperwork
Crisis” that occurred in the U.S. securities markets in late 1960s to early 1970s. NSCC margin
requirements shift from the EB to the PB for affirmed trades. It is important that the move to
T+1 does not result in a material reduction in the percentage of prime brokerage trades that
timely settle through centralized clearing systems. In prime brokerage, this means that the EB
will need to submit it trades to NSCC for CNS clearing by an early evening cutoff time established
by NSCC for CNS settlement on T+1. Similarly, PBs will have a shorter time to screen trade
information received from its clients prior to the affirmation cutoff time.
• Trade disaffirmation. Today, PB trades may be disaffirmed by prime brokers up until 5:00 PM ET
on T+1. In order to exercise its disaffirmation rights based on insufficient margin held in its
client’s account, the PB must disaffirm all trades on trade date and the day before settlement
across all EBs for a given client. Changes to the disaffirmation deadline in a T+1 settlement
environment pose a challenge for PBs because (1) there is reduced time to calculate margin,
make margin calls and implement other risk management controls, and (2) the absence of
disaffirmation automation has left many PBs with inefficient and time-consuming options for
disaffirming. The following events at ITP/NSCC will occur in the event of a trade disaffirmation in
a T+1 settlement cycle:
− A PB Disaffirmation submission by the PB results in the reversal of the original
transaction that was affirmed by the PB
▪ The reversal transaction will be submitted by ITP to NSCC
− The disaffirmation generates offsetting activity to the original affirmation and the
positions are updated accordingly
− In a T+1 settlement cycle, the disaffirmation can occur after settlement has already
occurred and as a result the EB may have a net delivery or receive to the NSCC
• Regulatory impacts. The move to T+1 settlement will require clarification from the SEC on
aspects of prime brokerage operations.
Recommendations
The IWG recommends the following for prime brokerage activity:
• The SEC should change the required deadline specified in the Prime Brokerage No Action letter
for executing brokers to inform the prime broker of trade details from the morning of the next
business day after trade date (which would be too late to effect settlement in CNS on T+1) to a
time on the evening of trade date that would meet NSCC’s evening cutoff time for matched and
affirmed trades to flip into T+1 settlement in NSCC’s CNS.
• Prime broker participants should conduct an internal analysis with their respective firms to
understand present-day practices and identify changes or enhancements that may be necessary
in order to implement T+1 settlement requirement.
• Under T+1, participants must (1) ensure that accelerating the affirmation deadline (and/or
disaffirmation deadline, if participants decide to accelerate that deadline), which will reduce
time for screening, does not compromise risk management controls or margin calculations, and
(2) work to mitigate any resulting increase in bilateral settlements.
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• PBs, executing self-clearing firms, and clearing firms of an introducing broker acting as an EB
should identify and implement any necessary amendments to their existing contracts regarding
the prime brokerage arrangement (e.g., including standardized documents, such as the Form
150), to reflect any necessary changes to timing for trade notification and affirmation and
should consider whether any changes are necessary to disaffirmation deadlines in light of the
T+1 environment.
• Standardize processes for prime broker customer onboarding to enable automated capabilities
for recurring, time-sensitive processes (e.g., Form 1 Schedule A).
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6. Securities lending
Background
Securities Lending (Sec Lending) facilitates several trading activities, such as, but not limited to, market
making, short selling, and hedging. Sec Lending is an essential market mechanism to facilitate trade
settlement.
In the current T+2 settlement environment, there is a reliance on batch cycle processes between
custodians and third-party lending agents. In the compressed timeframe of a T+1 settlement cycle, the
loaned securities subject to recall by the lender need to be identified in a compressed time frame so
custodians’ and agents’ processes can proceed without disruption.
Additionally, the current timing for recall issuances (e.g., as late as 3:00 PM ET on T+1), will have to be
reconsidered to avoid an increase in fail rates. The more notice broker-dealers have to return securities,
the more likely they will be returned in time for settlement. This change in the settlement cycle will
necessitate that lenders, borrowers, custodians, and service providers change their behavior because
security lenders will have less time to recall securities on-loan and security borrowers will have less time
to return those securities. These behavioral, technological, and process changes are important to
mitigate the impact on settlement processes resulting from a compressed settlement timeframe. The
IWG analyzed the below considerations in the securities lending process.
Considerations
The following are considerations relating to Sec Lending that the IWG believes firms should take into
account when reviewing securities lending processes internally. These considerations are followed by
recommendations in the next section.
• The existing timing for recalls specified in SEC Reg SHO FAQ 2.725 is specific to an assumed T+2
settlement cycle.
• Moving to a T+1 settlement cycle, compresses the timeline to identify and recall securities,
which could lead to breaks in the process resulting in an increase in trade fails and buy-ins
unless there is a modification to the existing rules, technology, and processes.
Recommendations
Based on Sec Lending discussions held to-date, the IWG recommends the following:
• Vendors and firms should discuss and provide recommendations on the securities lending
process to evaluate the risk to participants in the securities lending and equity trading markets.
The current timeline for recall issuances (e.g., as late as 3:00 PM ET on T+1) should be
reconsidered. The more notice broker-dealers have to return securities, the more likely they will
be returned in time for settlement. Industry discussions will continue regarding the securities
lending recall process timeline.
• Utilization of tools made available by vendors to streamline the recall, contract compare,
corporate action, buy-ins, and rebate interest collection processes.
25
For details on SEC Reg SHO FAQ 2.7 please visit: https://www.sec.gov/divisions/marketreg/mrfaqregsho1204.htm
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• Vendors and firms should discuss and provide recommendations on the securities lending
process in order to look for efficiencies in the current process. For vendors and system providers
who utilize overnight batch processing, the T+1 settlement cycle presents an opportunity to
move away from batch processing and move towards real time. The following dependencies
have been identified by the IWG for further study in coordination with market vendor solutions
to understand their impact in the implementation of an accelerated settlement cycle:
− Update of firm’s inventory positions with new trades and send to Agent Lenders
− Reduction in Contract Compare breaks if STP is adopted (e.g., consideration for smart
contracting solutions and the utilization of tools)
− Automated workflow tools or vendor-proposed solutions to reduce manual processes
− Vendor-to-vendor interoperability (e.g., books & records and Securities Lending
platform integration communication to serve brokers)
• The SEC should update existing interpretive guidance in SEC Reg SHO FAQ 2.7 by clarifying that if
a broker-dealer lends an equity security pursuant to a securities lending agreement that
requires delivery of a loaned security (recall period) within one business day after a bona fide
recall, then sells the loaned security, and recalls the loaned security by no later than two
settlement days following the trade date (or T+2), then the broker-dealer may mark the sale of
the security “long” for purposes of Regulation SHO Rule 200(g)(1), and that alternatively, if the
recall period is two business days after initiation of a recall, then the broker-dealer would need
to initiate the recall of a loaned security by T+1 in order to be able to mark such sales “long” for
purposes of Regulation SHO Rule 200(g)(1).
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7. Settlement errors and fails
Background
Settlement errors and trade fails occur today, albeit a small percentage, within today’s T+2 settlement
cycle. Settlement errors that are not corrected in a timely manner before settlement date will lead to
trade fails. Industry participants expend considerable effort to both prevent errors and fails and then
remediate them. In the current T+2 settlement cycle industry participants have 48 hours to remediate
trade errors to prevent trades from failing. In transitioning to T+1, there will need to be a heightened
focus on both the prevention and remediation processes for errors, as participants will have less than 24
hours to remediate trades. Market participants should review and enhance current operational
processes and technologies in order to mitigate the risk of errors thus reducing potential trade fails.
Considerations
Several causes of settlement errors are identified below:
Missing trade counterparty instructions
• Stale reference data not updated with current SSI instructions results in incomplete or
inaccurate reference data being utilized for trade execution.
• For block trades, counterparties may not distribute and or receive the allocation information in
a timely manner.
Missing or incorrect SSIs
• Due to non-standard processes for obtaining SSIs there may exist missing or incorrect SSIs.
• Root causes of fails likely to interrupt various streams of revenue data for pricing.
− Customers failing to update SSIs on automated systems
− Customers trading in a block account and allocating securities with one set of SSIs and then
making changes to another account shortly before settlement
− Firms awaiting trade instructions from the counterparty on a transaction for an illiquid
security
Shares not received from a recalled loan or pledged security
• Processing timelines will be compressed in a T+1 settlement cycle. If the recall process is
delayed for any reason, the ability to obtain the shares back may lead to a higher percentage of
trade fails.
• Given the compressed processing timelines in a T+1 environment, a delay in the request to
release pledged securities may lead to a higher percentage of trade fails.
Cancels and rebills
• The cancel and rebill process occurs when a trade is booked, affirmed, and added to CNS. Should
a trade be cancelled and then rebilled because of a monetary change to the trade, its attempt to
cancel a confirmation and affirmation does not undo the original trade submission to CNS and
the settlement of that trade occurs at DTC. Considering these instances occur frequently in a
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T+2 settlement cycle, it is believed that these occurrences will occur more often in a T+1
settlement environment.
• The industry lacks a standardized method and process to effectively and timely manage cancel
and rebills which creates inconsistencies between firms and is a driver of settlement errors and
subsequent fails. The current cancel and rebill process can lead to an increase in SPOs26 to
correct money differences.
Firm communications
• Many firms continue to rely on antiquated communication methods (e.g., emails, faxes) to
complete trade settlement. These inefficient communication channels contribute to errors and
delay trade settlement.
Conversions/realignments as applicable to RegS 144A securities (ADR/ORDs)
• In order to enable T+1 settlement without increasing fails, the industry believes there needs to
be automated solutions to the manual paperwork and physical stamp requirements to process
Reg S/144a conversions with the conversion agent community. In the current state, the ability to
convert securities ahead of standard settlement cycles to ensure timely settlement is already
strained leading to increased fails, counterparty risk and financial exposure. We believe that in a
T+1 environment, this risk will be further strained as the current process is not fit for purpose.
An industry solution would greatly benefit settlement efficiency and will improve liquidity in the
marketplace on these securities.
Recommendations
Based on discussions held to-date, the IWG recommends the following:
• Adopt full utilization of available technology such as DTCC’s ITP ALERT Database.
• Custodians should leverage ITPs Global Custodian (GC) Direct Service in updating SSIs,
standardizing the process for SSIs across the industry which may lead to several benefits,
including:
− The alleviation of fails that are likely to interrupt various streams of revenue data from the
viewpoint of pricing
− Avoid current issues driving SSI mismatches such as customers failing to update SSIs on
ALERT. In addition, avoid issues with customers trading in a block account and
subsequently allocating securities with one set of SSIs and then making changes to another
account before settlement
− Avoid situations where a counterparty is awaiting trade instructions from another
counterparty on a transaction for an illiquid security, which could impact liquidity
• Propose standardization of processes and further adoption of widely available automated
systems and solutions.
− In the cancel and rebill process, this will allow for industry participants to agree to pair-
offs, partials, and other trade details in a quicker manner which will be required to avoid
fails in an accelerated settlement cycle
26 These payment orders enable two parties to adjust the payment in and against payment settlement transaction in the books of DTC without
transferring the associated securities charges to settle money differences.
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• Market participants should adopt policies and procedures to update SSI reference data in a
timely manner prior to settlement.
− This includes reaching out to clients prior to settlement for updated SSIs and updating
the SSI information within internal systems prior to trade execution and/or settlement
• Shorten the CNS buy-in cycle for both CNS and non-CNS participants to facilitate the move to a
shortened settlement cycle.
• Market participants should review funding and/or inventory management practices to
proactively reduce trade fails in a T+1 environment.
• Develop standardize processes for cancel and rebills, including:
− In cancel and rebills, where a cancel instruction for an affirmed trade with quantity
difference is processed and agreed to by the counterparty, the receiving firm should DK
the transaction and the delivering firm will re-deliver the corrected transaction
− In cancel and rebills, where a cancel instruction for an affirmed trade with monetary
difference is processed and agreed to by the counterpart, market participants should
settle that monetary difference by submitting an SPO through DTC to collect the
monetary difference
• Market participants should implement controls to avoid the manual work required on T+1 for
cancel and corrected trades.
• Market participants should adopt policies and procedures that enable participants to update SSI
reference data in a timely manner prior to settlement, including reaching out to clients prior to
settlement and updating internal systems prior to trade execution and / or settlement.
• Firms and vendors should update their memo segregation27 processing to account for intraday
trading.
• Similar to the migration to T+2, DTC will perform an update of the security master to align
reference data and initiate the settlement date to be one (1) day instead of two (2) days.
27
Please see the DTCC definition on memo segregation here
DTCC Public (White)

8. ETF creation and redemption
Background
ETF shares creation & redemption is the primary market trading mechanism for ETFs —where
authorized participants (APs) place orders with Fund Sponsor’s (ETF’s) to create new shares and redeem
existing shares. The ability for APs to create or redeem ETF shares at NAV at the end of each trading day
is critical to the pricing efficiency and operational integrity of ETFs.
ETF shares are created when an “authorized participant” deposits the daily creation basket or cash with
the ETF. In return for the creation basket or cash (or both), the ETF issues to the authorized participant a
“creation unit” that consists of a specified number of ETF shares. Creation units are large blocks of
shares that generally range in size from 25,000 to 200,000 shares. The authorized participant can either
keep the ETF shares that make up the creation unit or sell all or part of them on a stock exchange. ETF
shares are listed on a number of stock exchanges where investors can purchase them as they would
shares of a publicly traded company.
NSCC’s ETF service is the primary market for Create and Redeem eligible funds, the ETF application
processes these orders through CNS which provides a Central Counterparty Guarantee.
The IWG reviewed the following key areas of impact of shorter settlement cycle (T+1) on the ETF
creation and redemption processes:
• Batch Cycles Timing

• Collateral Requirement
• Alignment of Record and ex-date for ETF distributions
• U.S.-listed ETFs with global securities non-NSCC eligible, except for cash28
Considerations
The following are considerations relating to ETFs that the IWG believes firms should consider when
reviewing processes internally. These considerations are followed by recommendations in the next
section.
• Timing of batch cycles. NSCC currently receives ETF creation / redemption input until 8:00 PM
ET on T with no plans to extend the 8:00 PM ET cutoff under the accelerated settlement cycle.
The batch driven cycle is subject to tight timeframes with Agent Banks, AP’s and NSCC waiting
on end of day pricing and a small window for processing. This consideration poses the following
challenges:
− Currently the timing of the CNS exemption is set to 10:30 PM ET. In a shorter settlement
cycle this may represent processing difficulty to members of CNS as this is the first time
those trades are seen via the instruction detail blotter
• Collateral requirements. There were challenges considered around the posting of collateral for
baskets of securities in a T+1 settlement cycle for funds with global components. T+1 will result
28
Creation / redemption activity done ex-clearing will not be impacted by NSCC clearance and settlement process.
DTCC Public (White)

in compressed timelines and misalignment of global settlement cycles which may create the
following challenges:
− On the creation side, APs will need to post collateral for an additional day to release the
ETF shares on T+1 if the underlying securities are international, settling T+2 or later. This
will create cash management challenges especially if there is a need to sell underlying
securities in global markets with a longer than T+1 settlement. This misalignment in
settlement cycles introduce the possibility of APs needing to establish lines of credit
with the collateral payment shifting a day forward
• Other considerations. The following areas should be examined:

− AP agreements to perform functions on behalf of clients should be reviewed for
language to allow flexibility for a shorter settlement cycle
− Baskets holding IPO shares may see extended settlement depending on APs ability to
deliver the shares but should not be impacted by accelerated settlement
− Extended settlement for rebalancing will still occur
Recommendations
• To mitigate issues with the new proposed timing of the CNS exemption at 10:30 PM ET, APs
should subscribe to real time messages coming out of NSCC’s Universal Trade Capture (UTC)29
system. Real time messages will allow APs to calculate the exemptions in a timely manner for
processing.
− NSCC will present options to alleviate CNS Exemption concerns including:
▪ Distribution of ETF Instruction Detail Blotter with settlement details prior to
current 9 PM Cycle
▪ Development of a near real time create/redeem process after 7 PM in NSCC’s
Primary Market Service
▪ Distribution of Trade Capture messaging in Near Real time for Create / Redeem
trades
• Adopt the use of collateral processing tools such as NSCC’s collateral process, to centralize the
collateral process for global components. Adoption of these tools will centralize collateral
processing and reduce cash management risk due to misaligned settlement cycles.
• Extend baskets holding IPO share settlement when necessary, depending on an APs ability to
deliver shares. Extended settlement is an agreed upon order consummation between the AP
and the ETF.
29 UniversalTrade Capture (UTC) is a service that validates and reports equity transactions that are submitted to NSCC by an exchange or by a
Qualified Special Representatives (QSRs) that is an NSCC Member.
DTCC Public (White)

9. Equity and debt offerings
Background
A key consideration for the move to a T+1 settlement cycle is the impact of a shortened settlement cycle
on the equity and debt offering processes, including the Initial Public Offering (IPO) process for equities.
An IPO refers to the process of offering shares of a company to the public in a new stock issuance
allowing the company to raise capital from public investors.
The current market practice for substantially all equity offerings is to settle on the current T+2
timeframe, notwithstanding the exceptions provided in Rule 15c6-1(c) for firm commitment offerings
priced after 4:30 pm ET, provided the transaction settles no later than T+4, and in Rule 15c6-1(d) for
firm commitment offerings if the managing underwriter and issuer agree to an alternative date for
settlement for all securities sold pursuant to an offering. Operationally, given the technology used for
the trading of equity securities and the volume of trades occurring between pricing and settlement of
the offering, firms in the current T+2 environment are largely unable to accommodate different
settlement timeframes for equity offerings versus secondary market equity transactions. While the
exception in Rule 15c6-1(c) is rarely used in this current T+2 settlement environment for equity
offerings, we believe that utilization of paragraph (c) will be required with increasing frequency if T+1
becomes the default settlement period, as the underwriting community potentially may no longer be
able to consistently settle equity offerings on the same period as secondary market equity transactions
due to the concerns described below.
For debt offerings, due to the non-standard nature of many such offerings and the documentation
involved, frequently settle on an extended basis in reliance on the exception in Rule 15c6-1(d) noted
above. We note that substantially all of the purchasers in debt securities offerings are large,
sophisticated institutions, and the risk and depositary collateral issues and concerns underlying the
desired move to T+1 are largely inapplicable to the settlement of these offerings.
Considerations
Equity Offerings
Equity offerings involve a myriad of unique issues that have historically led the Commission to allow
them to have the ability to settle later than the standard securities transaction settlement cycle found in
Rule 15c6-1(a), as reflected in the exception provided in 15c6-1(c). While the industry has made great
strides over the years to make the equity offering process more efficient, the unique documentation,
operational, and transactional features of equity offerings likely will increase the need for firms to more
frequently rely on this exception when the default settlement period were moved to T+1.
Certain potential concerns with the reduction of the current T+2 settlement period set forth in Rule
15c6-1 for equity offerings have been identified, including:
• Documentation Issues - Both primary equity offerings (where newly issued shares are sold by
the issuer) and secondary equity offerings (where existing shares are sold by affiliates and other
existing shareholders) are very document intensive and often require significant participation by
counsel to ensure that all the Securities Act, FINRA and state and foreign corporate law
DTCC Public (White)

requirements, and various conditions to closing are met. This includes the preparation and
delivery of the final prospectuses, which, on a T+2 settlement period, often occurs on the
morning of settlement, as well as preparation of various other documentation that is required
to effect the closing of new issue equity offerings. As a result, for example, the final prospectus
is unlikely to be delivered prior to the settlement of T+1 offering. There are also certain
transactions and processes that cannot be accomplished on a T+1 basis in their current
formulation; for example, “registered block trades” whereby affiliated shareholders bid out a
sale of shares to multiple underwriters require the delivery of stock powers/medallion
guarantees cannot practically be completed on a T+1 basis and the information required to
complete them is not typically available before the terms of the transaction are finalized at
pricing. Additionally, a T+1 settlement timeframe provides firms with virtually no time to
address unanticipated documentation issues that may arise in connection with equity offerings.
Any delays related to such documentation could affect the ability of the securities to be handled
in book-entry form at DTC/NSCC and thus could delay settlement beyond T+1.
• Operational Issues - Similarly, a T+1 settlement timeframe provides firms with virtually no time
to address unanticipated operational issues that may arise in connection with primary or
secondary equity offerings. Any operational issues that result in processing delays could affect
their ability to achieve T+1 settlement for equity transactions.
• Restricted Book-Entry Shares - Selling shareholder's shares are often in restricted book-entry
format subject to restrictive legends, so settlement with "clean" book-entry shares held through
DTC requires close involvement of the issuer's transfer agent, share registrar and/or ADR
depositary, depending on the security being sold. While increasingly rare, selling shareholder
shares also can be certificated, which further complicates the process. In ADR-related
transactions, there are 2 layers of transfers, one for the local shares and one for the ADRs, and
the transfer of the local shares adds time zone constraints as well as applicable local law
processes.
• Exercising the Shoe – T+1 practically eliminates the ability for underwriters to exercise their
overallotment option in time for it to settle concurrently with the base offering on the T+1
settlement date, increasing transaction costs for issuers because a single settlement combining
both the base offering and the exercise of the overallotment option is not possible. Practically
speaking, going to T+1 would mean many more deals would be forced to have two closings,
which places additional costs on the issuer.
• Foreign Issuers – In many cases, the sale of shares by non-U.S. issuers and shareholders requires
additional approvals and processes, often involving parties whose regular business hours seldom
coincide with U.S. business hours. Additionally, these parties can raise unexpected, non-
negotiable requirements at the last minute, leaving very little time for a response. For example,
in certain European markets (including Switzerland, Denmark, France and Germany) banks have
to pre-fund the nominal amount/par value (in local currency) to the company in order for the
company to then register the share capital increase with the local register. The register (or a
judge in Germany for example) then approves the share capital increase. And only when the
share capital increase is registered, can the company close the offering. By eliminating a
business day from the settlement cycle, any hiccup in that process could lead to a delayed (and
potentially failed) settlement.
Debt Offerings
DTCC Public (White)

Due to the non-standard nature of many debt offerings and the documentation involved, they
frequently rely on the exception in Rule 15c6-1(d) noted above. Set forth below of some of the reasons
why debt offerings historically have needed, and will continue to need, this exception if the standard
settlement cycle is moved to T+1.
• Debt offerings are very document-intensive and typically have more documentation than
equity offerings. This documentation includes indentures, guarantees and collateral
documentation, all of which are individually negotiated and very often unique to the
transaction. As a result, a substantial percentage of debt offerings (including, for example, a
majority of non-investment grade debt issuances) currently settle on a period longer than
T+3.
• Debt offerings can involve the sequencing of transactions in a manner to allow issuers to
reduce or eliminate the double payment of interest, including in transactions where an issuer
is redeeming or repurchasing outstanding securities or repaying loans, or using the proceeds
of a debt offering to finance an acquisition. This sequencing may also require the releasing of
existing security interests in the collateral which secures outstanding debt, as well as making
the requisite filings to perfect security interests in the collateral securing the newly issued
securities.
• Extended settlement allows issuers to access the market at the most opportune time and
reduces market risk. Requiring issuers to make all the requisite closing documentation
execution-ready prior to launch of an offering that settles T+1 would delay the launch and
pricing of offerings.
Recommendations
• Retain the exception in Rule 15c6-1(c) but shorten the applicable period to T+2. The Commission
could also solicit comment on the possibility of (a) eliminating the exception and/or (b)
shortening the applicable period to T+2 but eliminating the “priced after 4:30 pm ET”
requirement. Due to complex documentation, operational, and transactional features of equity
offerings such as overallotment options, we believe that the settlement of certain offerings on a
T+2 basis (instead of the T+1 timeline) will be far less disruptive to the market than “busted
trades” resulting from the inadvertent, but likely inevitable, failure to complete them on T+1
basis.
− In making this recommendation, we recognize that paragraph (d) provides an exception

from T+2 settlement for firm commitment offerings if the managing underwriter and
issuer agree to an alternative date for settlement for all securities sold pursuant to an
offering. We believe that paragraph (d) adequately covers offerings (as a practical
matter limited to debt offerings) in which the managing underwriter and issuer reach an
agreement prior to, or at the time of, the pricing of an offering regarding an extended
settlement time beyond T+2. Paragraph (d) does not, however, address situations in
which T+2 was contemplated at the time of pricing, but unexpected issues subsequently
arose that delayed settlement
DTCC Public (White)

− In contrast, paragraph (c) provides a “fallback” mechanism whereby settlement can,
without explicit agreement at the time of pricing, nevertheless occur after T+2 so long
as it occurs within T+4. While we believe paragraph (c) is currently rarely used in the
context of a default T+2 settlement period, we believe that utilization of paragraph (c)
will be required with increasing frequency if T+1 becomes the default settlement period
• Retain the exception in Rule 15c6-1(d) to allow debt and other offerings to have the ability to
opt for extended settlement.
DTCC Public (White)

10. Regulatory impacts
Background and next steps
Ahead of the adoption of the T+1 settlement cycle, the regulatory community should review the current
rule sets that establish the current T+2 settlement cycle and amend to conform to a T+1 settlement
cycle. The following are the preliminary rules identified:
Rule Name High-Level Rule Description
A broker or dealer shall not affect or enter into a contract for the purchase
or sale of a security that provides for payment of funds and delivery of
SEC Rule 15c6-1(a)
securities later than the second business day after the date of the contract,
subject to certain exceptions.
SEC Rule 15c6-1(a) shall not apply to contracts for the sale for cash of
securities that are priced after 4:30 p.m. Eastern time on the date such
securities are priced and that are sold by an issuer to an underwriter
pursuant to a firm commitment underwritten offering registered under the
Securities Act of 1933 or sold to an initial purchaser by a broker-dealer
SEC Rule 15c6-1(c)
participating in such offering provided that a broker or dealer shall not effect
or enter into a contract for the purchase or sale of such securities that
provides for payment of funds and delivery of securities later than the fourth
business day after the date of the contract unless otherwise expressly agreed
to by the parties at the time of the transaction
MSRB Rule G-
Settlement dates shall be as follows: (B) for "regular way" transactions, the
12(b)(ii)(B), G-
second business day following the trade date
15(b)(ii)(B)
“No broker, dealer or municipal securities dealer shall sell any offered
MSRB Rule G-32(a)(i) municipal securities to a customers unless such broker, dealer or municipal
et. al. securities deliver delivers to the customer by no later than the settlement of
the transaction a copy of the official statement”
In connection with a transaction “regular way,” delivery shall be made at the
FINRA Rule 11320(b) office of the purchaser on, but not before, the second business day following
the date of the transaction
Bids and offers in securities of the United States Government admitted to
NYSE Rule 64(a) dealings on an "issued" basis shall be made only as the "regular way" for that
security i.e., for delivery on the business day following the day of the trade
NASDAQ Rule In connection with a transaction "regular way," delivery shall be made at the
11320(b), 11140(b)(1) office of the purchaser on, but not before, the second business day following
,11150(a) the date of the transaction
All contracts effected or entered into by a national bank for the purchase or
OCC Regulation, Part sale of a security shall provide for completion of the transaction within the
12.9(a) number of business days in the standard settlement cycle followed by
registered broker dealers in the United States
DTCC Public (White)

Rule Name High-Level Rule Description
All contracts effected or entered into by an FDIC-supervised institution that

FDIC Rules and
provide for the purchase or sale of a security shall provide for completion of
Regulations, Part
the transaction within the number of business days in the standard
344.7(a)
settlement cycle
No member shall accept an order from a customer pursuant to an
FINRA Rule
arrangement whereby payment for securities purchased or delivery of
11860(a)(4),
securities sold is to be made to or by an agent of the customer unless a
11140(b)(1),11150(a)
certain set of procedures are followed
Transactions in stocks except those made for "cash" as prescribed in Rule 14,
shall be ex-dividend or ex-rights on the second business day preceding the
NYSE Rule 235, 236
record date fixed by the corporation or the date of the closing of transfer
books
MSRB G-12(b)(ii)(C),
Outlines uniform practices for the processing and settlement of municipal
(D),
securities
G-15(b)(ii)(C)
Principally, describes the prime brokerage arrangement, confirms that a
SEC 1994 Prime securities trades executed by a customer with an executing broker for give-
Brokerage up to a prime broker does not violate the “free-rider” rule in Regulation T, as
No Action Letter well as setting forth the division of responsibilities, rights and obligations
among a prime broker, an executing broker and their mutual customer
SEC Rule 10b-10
(Confirmation Requires broker-dealers to send customers a written confirmation on or
delivery before the completion of a transaction
requirements)
Rules establishes order marking, "locate" and "close-out" requirements
Reg SHO
aimed at curtailing naked short selling and other abusive practices
Federal Reserve Governs cash accounts, as well as the amount of credit that broker-dealers
Board Regulation T can extend to investors for the purchase of securities
SEC Rule 15c3-3
The rule dictates the amount of cash and securities that broker-dealer firms
(Customer
must segregate in specially protected accounts on behalf of their clients
Protection)
Requires such broker or dealer to “deliver a copy of the preliminary
SEC Rule 15c2-8(b) prospectus to any person who is expected to receive a confirmation of sale
at least 48 hours prior to the sending of such confirmation.”
DTCC Public (White)

Conclusion
Based on the discussions held to date, the ISC and IWG recommend that the Industry pursue a move
to a T+1 settlement cycle in Q1/Q2 2024.
While numerous recommendations and considerations are noted throughout this paper, a successful
migration to T+1 is also based on organizations taking the information noted here and developing their
own internal migration plans. There also must be an industry effort to collaborate with regulators to
achieve necessary rule changes, develop an industry-wide implementation plan, and conduct vigorous
testing.
The ISC and IWG will continue to partner closely with organizations to promote awareness and
understanding of the proposed T+1 migration timeline, industry-level requirements, industry
considerations, leading best-practices, and industry-wide testing. The recommendations outlined in this
paper provide the industry with a foundation to facilitate the necessary changes. As the industry moves
through the multiple phases of the T+1 migration, the ISC will continue to engage with regulators on
progress and next steps. Organizations should leverage the information provided in this paper and
engage with the ISC to ensure their firms’ preparedness as the industry migrates to T+1 settlement in
the U.S. by the proposed implementation date in Q1/Q2 2024.
DTCC Public (White)

Appendix
Illustrative T+1 Trade Processing Flow Chart30
The following figure demonstrate the activities and timing of the various processing workstreams that
will occur during the 24-hour settlement period. The diagram can be used to understand data drops by
the various processing units, deadlines for submission of data and the coordination times across the
ecosystem.
T+1 Trade Processing Comparison Chart31
The following chart lists the critical trade processing and settlement activities and deadlines identified
by the IWG that will be impacted by T+1, either directly or indirectly, and involve one or more market
participants. Rows highlighted in blue indicate a proposed change from the current-state (T+2) and are
the proposed IWG recommendations for the future-state (T+1) processing timelines and deadlines.
Current State Future State ITP. DTC and NSCC Technical
Activity # Activity Name Dependencies
Time Target32 Time Names & Job Numbers
NAV Calculation
1 6:00PM on T 6:00PM on T N/A
Processing
CTS MACHINE READABLE OUTPUT

MRO Autoroute#- 02042339- MRO
• Firm trade
2 CTS 1 Report 9:00PM on T 10:00PM on T
submissions
CTS COMMA SEPARATED VALUES in NSCC
CSV Autoroute#- 02042340- CSV

3 CTS 2 Report 11:59PM on T
1:30AM on MRO Autoroute#- 02042339- MRO • Firm trade
T+1 submissions in
NSCC
30 The activities of the nightly process flow.

31 The activities highlighted in blue indicate a change between current state and future state target time.
32
These are the expected Future State Targets times and not the DTC and NSCC SLA proposed times.
DTCC Public (White)

CTS COMMA SEPARATED VALUES
CNS Projection 12:30AM on 2:00AM on MRO AutoRoute# 02042022

4
Report T+1 T+1 Print Image Autoroute# 02040009
Fedwire Funds
5 9:00PM on T 9:00PM on T N/A
Opens
Fedwire Funds 7:00PM on

6 7:00PM on T+1 N/A
Closing Time T+133
1st ACH Deadline 10:30AM on 10:30AM on

7 N/A
(1 PM S) T+1 T+1
ITP Affirmation 11:30AM on

8 9:00PM on T • Form 1
Cutoff T+1 N/A
Schedule A

MRO Autoroute#- 02042339- MRO
11:45AM on • Firm trade
9 CTS 3 Report 1:45PM on T+1
T+1 submissions
CTS COMMA SEPERATED VALUES in NSCC
ITP Cumulative 12:00PM on Technical file name=Cumeter

10 9:30PM on T
Report T+1
CNS Midday Projection File (MRO

CNS Midday 12:00PM on
11 5:00PM on T+1 Autoroute# 02042358) (Print Image
Projection File T+1
Autoroute# 02042366)
2nd ACH Deadline 2:45 PM on

12 2:45PM on T+1 N/A
(5 PM S) T+1
5:00PM on T+1 Input- TRADESUITE ID™ ADVICE OF

CANCELLATION OR CORRECTION
Disaffirmations
MESSAGE SPECIFICATION - AOT1
between
(MQ) or AOT5 (FTP and NDM) and
9:00PM on T
the output messages are placed in a
to 1:30PM on
CDSC mailbox. Message Type on the
T+1 would
message header is AOCCNF.
Prime Broker 5:00PM on result in
13 reversal
Disaffirmation T+1
transactions
being Output - TRADESUITE ID Confirm
generated for Trade Output Message
same day Specification- Input for Trade
settlement. If Confirmations is TRAM (MQ) or
the original PB TRAC (FTP and NDM) and the
transaction is output messages are placed in a
unsettled, the CDSC mailbox. Message Type on
33
https://www.newyorkfed.org/aboutthefed/fedpoint/fed43.html
DTCC Public (White)

disaffirmation the message header is CONFRM.
will net against Trade Cancellations and Attempt
the original to Cancel records are confirms
transaction. If with updated status codes and
the original PB would also be Message Type
transaction is CONFRM.
settled, the
disaffirmation
will result in
new NSCC
positions to be
settled. Both
scenarios
could impact
both the PB
and EB NSCC
intraday
margin
requirements
and could
result in
intraday
margin calls.
Disaffirmations
between
1:31PM on T+1
to 5:00 p.m.
on T+ 1 would
result in
reversal
transactions
being
generated for
the next day
settlement day
(S+1). Similar
to above, if the
original PB
transaction is
unsettled, the
disaffirmation
will net against
the original
transaction. If
the original PB
transaction is
settled, the
disaffirmation
will result in
new NSCC
positions to be
settled. Both
scenarios will
DTCC Public (White)

impact both
the PB and EB
settlement day
+1 NSCC
margin
requirement.
Authorizations
and Exemptions 6:30PM on
14 10:45PM on T ID ANE
for ID, and CNS T+1
transactions
11:30AM on
9:15PM on T
T+1 to be
to be eligible
eligible for
for DTCs Night
DTCs Night
Exemptions for ID Cycle Process
15 Cycle process ID Net
Net transactions 11:30AM on
11:30AM on
SD for DTCs
SD for DTCs
Day Cycle
Day Cycle
process
process
CNS Position Prior 7:30PM on MRO AutoRoute# 02040951

16 9:45PM on T
to Night Cycle T+1 Print Image Autoroute# 02040950
CNS Position Prior 12:30AM on 2:00AM on MRO 02040949

17
to the Day Cycle T+1 T+1 Report 02040950
DTC Night Cycle

8:30PM on
18 Batch Process 11:30PM on T N/A • Deliver
T+1 Orders
Begins
DTC Night Cycle

10:30PM on 1:30AM on
19 Batch Process N/A
T+1 T+1
Completed
Technical file name=DTCPDQ
DTC Night Cycle 10:30PM on 1:30AM on

20
Output T+1 T+1
Output = DTFPDQ
Initial NSCC
2:00AM on 2:00AM on
21 Margin Calls • NSCC Margin
T+1 T+1 N/A
Placed Calculations
Fedwire Securities 8:30AM on 8:30AM on

22
movement opens T+2 T+1 N/A • N/A
NSCC Funding 10:00AM on 10:00AM on

23 N/A
Due T+1 T+1
DTCC Public (White)

3:00PM on
DTC Delivery T+2 3:00PM on T+1
24 Cutoff for Valued 3:10PM on 3:10PM on T+1 N/A
Transactions T+2 (recycle (recycle cutoff)
cutoff)
DTC Delivery
6:15PM on
25 Cutoff for Free 6:15PM on T+1 N/A
T+2
Deliveries
Close of Business 3:45PM on

26 3:45PM on T+1 N/A
Settlement T+2
Output File
MEMOSG (4.06): Memo Segregation
Activity
DTFMEM (4.05): Memo Segregation

Balances
MQ_SEG (20.06): SEG and

MEMOSEG (Output)
Input File
SEG1/5 (4.08): Segregation/Memo

Segregation/Investment ID Input
24x5 24x5 File
27 Memo Seg ISO Input
(Typically, Best Practice:
3AM-8AM) 9PM -11PM ISO 15022 Message Layouts -
Segregation/Seg Release/Memo
Segregation/Investment
ID/Investment ID Release Input
ISO Output- ISO MSEG output is the

standard long form MT548
Best practice for Memo Seg

between 9pm and 11pm should be
used to make adjustments to
existing MS positions or add new
ones.
MRO Autoroute#02042008
MRO Extended Record ID Net
CNS Night 12:30AM on 2:00AM on
28 Autoroute#02040343
Miscellaneous File T+2 T+1
Print Image Report
Autoroute#02040001
MRO Autoroute#02040331
CNS Day 3:30PM on Print Image Report#02041235
29 3:30PM on T+1
Miscellaneous File T+2 MRO Extended Record ID Net
Autoroute#02040331
CNS Accounting 3:30PM on MRO Autoroute #02042024

30 3:30PM on T+1
Summary T+2 Print Image Autoroute 02040012
DTCC Public (White)

CNS Night 10:30 PM on 2:00 AM on MRO AR# 02042023 Displays
Settlement T+2 T+1 the receives
Activity from CNS and
31 the delivers to
Print Image AR# 02040005 CNS that
occurred during
the night cycle
CNS Day 3:30 PM on 3:30 PM on MRO AR# 02041234 Displays the

Settlement T+2 T+1 receives from
Activity CNS and delivers
32 to CNS that
Print Image AR# 02040010 occurred during
the day cycle
CNS Preliminary 12:30 AM on 2:00 AM Print Image AR# 02040006 Displays the
Cash T+2 on T+1 summary of all
Reconciliation CNS money
33
activity that
occurred during
the night cycle
3:30 PM on 3:30 PM on Print Image AR# 02040011 Displays the

T+2 T+1 end-of-day
CNS Final Cash
34 summary of all
Reconciliation
CNS money
activity
CNS Balance 8:15PM on 10:30PM on T MRO Autoroute# 02040996(Print

35 T+1 Image Autoroute# 02040002)
Order MRO
CNS Buy -In 12:30AM on 2AM on T+1 Autoroute# 02040890 (Print Image
36 T+2 Autoroute# 02040891)
Activity
N/A Real Time TBD

starting at
New Real-time
4:00AM ET on
37 Balance Order
T+1 until
Message
1:30PM ET on
T+1
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Other Guidance
Guidance Name High Level Guidance Description
Designed to provide a basic contractual framework for forward and other

SIFMA MSLA (Master Service Level
delayed-delivery transactions involving mortgage backed and asset-backed
Agreement) standardization
securities.
Form 150 and accompanying Form 1

Agreement between Prime Broker and Executing Broker and accompanying
Schedule A (Prime brokerage agreement
list of customers.
standardization)34
Rule 204 requires that a clearing broker, if it fails to deliver on a sale trade on
the settlement date, and that fail continues for a specified number of days
Rule 204 after the settlement date (or, in some cases, the trade date), it must closeout
its fail by buying or borrowing the relevant security a specified number of days
later prior to the opening of the regular trading session on that day.
Revision History
Version Publish Date Description
1.0 12/01/2021 Initial Publication

1.1 12/06/2021 Changed the second paragraph of the
corporate actions section on page 19
so that it reads due bill redemption
date as ex-date plus one (1) trading day
instead of the previously stated ex-
date plus (2) trading days.
1.2 1/18/2022 Added Nos. 31-34 CNS Activity to the
T+1 Trade Processing Comparison
Chart.
1.3 04/19/2022 Amended T+1 Trade Processing
Comparison Chart on page 38 by
adding No. 15, 35, 36, 37, and 38 and
amending No. 11, 13, and 14.
1.4 7/26/2022 Further amendments to T+1 Trade
Processing Comparison Chart on page
38, addressing items 14, 16 and 37.
34
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Table of Figures
Figure 1: Proposed industry migration timeline ........................................................................................... 7

Figure 2: Illustrative T+1 settlement trade flow ........................................................................................... 8
Figure 3: Illustrative T+1 Trade Processing Flow Chart ............................................................................... 38
Figure 4: T+1 Trade Processing Comparison Chart ..................................................................................... 38
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Accelerating the U.S.

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SIFMA and its members

Tom Price, Managing Director, Techology, Operations, Business Continuity

Anthony Macchiarulo, Senior Associate, Financial Services Operations

ICI and its members

Marty Burns, Chief Industry Operations Officer

The Depository Trust & Clearing Corporation

Deloitte & Touche LLP

Roy Ben-Hur, Managing Director

Mara Gauger, Manager

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Industry Steering Committee Recommendations

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Table 1: T+1 Settlement Recommendations

No. Topic Recommendation

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Overview of T+1 securities settlement

Overview of T+1 Securities Settlement

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Benefits of a T+1 Settlement Cycle

Below is a summary of the primary benefits anticipated by adopting T+1 settlement:

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− Infrastructure modernization: Through technology adoption, the automation of manual

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Considerations on T+0 Settlement

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How to use this report

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• All firms submit allocations as soon as possible following trade execution.

• Change the affirmation deadline from 11:30 AM ET on T+1 to 9:00 PM ET on T.

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Additionally, the IWG recommends:

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