The greater the number of days between trade and settlement dates the greater the risk of failure and higher costs to industry participants
Why does it take longer than a day to settle a trade? Most trades are executed in automated markets. Today there are central securities depositories, so physical certificates don’t move as they once did in the “old days”. And investors wire funds on a same day basis to, or maintain balances with their, brokers to effect settlement. So, why do we need more than a day to settle a trade?
I appreciate that the migration to TD+0 will greatly impact investors, operations, industry infrastructure and technology organizations. But it is time for the global industry to admit that each incremental reduction introduce risks and doesn’t really deliver the benefits that TD+0 will.
Any reduction in the time between trade and settlement requires global coordination to avoid havoc for investors and industry infrastructure organizations. It seems that it is simpler to do this once and limit the inherent risks from multiple reduction cycles.
In addition, all participants will need time to plan and implement the operational and technology changes to support the new schedule. This includes investors, brokers, banks, custodians, prime brokers, central securities depositories, clearing corporations and the regulators.
What are your thoughts about this?
Agree….or ….. disagree – why?
Is
there a better way?