T+1 Settlement Update
The financial services industry, in coordination with its regulators, is planning to shorten the settlement cycle for equities, corporate bonds, municipal bonds, unit investment trusts, and financial instruments comprised of these security types (e.g., ADRs, ETFs), from the current cycle of trade date plus two business days (T+2) to trade date plus one business day (T+1).The benefits behind the move include reduction in costs, increase in market efficiency, and reduction in settlement risk. This is an industry-wide initiative that is expected to take place in Q3 2024, pending final regulatory ruling.
Some of the major recommendations provided by the Industry Steering Committee (ISC) include:
- Change to the affirmation deadline from 11:30 AM on T+1 to 9:00 PM on T
- NSCC will implement changes to its Universal Trade Capture (UTC) system and to its Exchange Traded Funds (ETF) creation and redemption system to update the rules these systems use to assign the settlement date to transactions to T+1
- ID Net transactions affirmed by 9:00 PM on trade date will be sent to CNS for processing. Members have until 9:15 PM to exempt or authorise any changes impacting a net position settling in the night cycle
- Ex-Date calculation for regular way dividend processing will shift from one day prior to the record date to the same day as record date in a T+1 settlement cycle
- Many trade processing and settlement activities and deadlines will be impacted by T+1, either directly or indirectly
Please check out the official T+1 DTCC site for all information here.
Match to Instruct (M2i)
DTCC has launched the Match to Instruct (M2i) initiative designed to improve the trade match and settlement processes.
In this new process, DTCC will facilitate a “single match” on Trade Date which will become the “golden source” trade record that flows through to the settlement agents.
- DTCC will issue affirmed ID confirms upon a trade reaching Match Agreed status in CTM. Brokers will no longer issue ID confirms.
- Investment Managers and Brokers will no longer maintain or enrich SSIs locally; SSIs will be sourced from the ID confirms which DTC will enrich centrally from Alert.
The objectives of the M2i initiative are to increase Trade Date Match Certainty to:
- Increase settlement efficiency by streamlining trade date processes
- Improve settlement rates through increased match rates.
DTCC has recommended this initiative as part of its best practices for T+1. Please follow this link to DTCC’s website to learn more about the initiative. The Broadridge team is initiating a Client Focus Group specifically around changes related to Fixed Income (impact) processing.
If you have any questions about how this initiative affects you and your firm, please reach out to your Broadridge Account Managers to participate in the Client Focus Group.
Automated Claim Adjustment Process (ACAP)
The Federal Reserve Banks Fedwire Securities Service offers an Automated Claim Adjustment Process (ACAP) feature for adjustments to principal and interest payments between participants for repo transactions, fails, and interim accounting. Currently, ACAP is available only for claims related to mortgage-backed securities (MBS) issued or guaranteed by US government agencies and sponsored enterprises. The Federal Reserve Banks are enhancing ACAP by including additional security types, reducing time for clearing claims, and improving claims tracking as detailed below. A major change is that Federal Reserve Banks will begin to use the Fedwire Securities Service to affect claim adjustments, rather than the National Settlement Service application.
Other changes proposed:
- Adding to Repo and Fail Tracking US Treasuries and non-Treasury debt. (a.k.a. Agency debt, issued by other government agencies and government-sponsored enterprises.)
- Reducing the time for P&I adjustments for participants; claim adjustments will be made promptly after an issuer’s P&I payments are paid to record-date holders.
- Enable tracking of other Securities Lending activity, in addition to Repos, for MBS, Treasury, and Agency debt.
- Expanded daily reporting to support back-office reconciliations
Major impact system enhancements have been completed to add functionality including:
- Extending repo and fail tracking functionality to include Treasury and Agency debt and provide a process to convert securities designated for transition to ACAP tracking.
- Adding the capability to identify Securities Lending transactions for tracking for MBS, Treasury and Agency debt, with client-specific preferences based upon either the counterparty or finance type.
- Expanded interfaces with BNYM and enhanced reporting for ACAP
These changes take effect August of 2023. Please check back for more information on the changes impact is implementing on our documentation website.
Watch Video: LIBOR to SOFR - Part 2 (broadridge.com)
FICC Pair-off Service (Phase 1) Update
The Mortgaged -Backed Securities Division (MBSD) of FICC has put together a proposal that utilises the existing Electronic Pool Notification (EPN) gateway for assistance with the existing TBA pair-off process between Buy-Side and Sell-Side firms. Currently Buy-Side firms notify their sell-side counterparts by e-mail about which transactions to pair-off. Once the trades are paired-off, many firms compare final net money and then numerous settling banks are involved in handling thousands of cash wires monthly. FICC is proposing a solution to this problem in two phases. Phase 1 will consist of the introduction of a new EPN pair-off message and reporting. Phase 2 will consist of the tracking and processing of settled pair-offs and cash settlement.
FICC has decided to move ahead with this initiative. They will be setting up working groups that include representatives from dealers, buy-sides, and custodian banks to build the framework for Phase 1 and Phase 2. Broadridge will also participate in those working group meetings.
The MBSE team will also be reaching out to clients in Q1 2023 to ascertain if this is something that they would like to pursue. If you have comments of feedback on this proposal that you would like to discuss with the MBSE team, please reach out to firstname.lastname@example.org
Canadian TMX CDS Post Trade Modernisation (PTM) Update
Canadian TMX CDS Post Trade Modernisation (PTM) Project is driven by the need to upgrade the CDS clearing, settlement and depository platform to a more modern and supportable technology that allows for flexibility in building future changes and to ease future support activities for the platform. To achieve this goal, the CDS clearing solution is migrating from the legacy TCS “CDSx” solution to the “BaNCS” platform.
To align with the industry change, Broadridge ClearancePro CDS application has initiated a project to develop the requisite functionality to meet the CDS Modernisation future state. These have been addressed as part of a suite of enhancements controlled via switch.
Learn More About the PTM Project
Please reach out to the Clearance Pro team for more information Richard.email@example.com