T+1 Transaction Timeline From 1976 to May 2024 and beyond.
As the deadline for the SEC’s T+1 initiative approaches on May 28th, 2024, IT departments are facing the challenge of making sure their systems are up to date and ready for the demands of T+1 transactions. The T+1 initiative is a move to shorten the trade settlement cycle from the current two-day, T+2, to a one-day, T+1. This is a major change for the industry, requiring that systems support the completion and settlement of transactions within 24 hours, and also scale to the increased demand enabled by the faster settlement time. And in this case - there really isn’t a Plan B or hope for a postponement. The consensus of the industry is that just like with the year 2000, a back-out of T+1 functionality is not an option. Any problems will need to be addressed by the applicable firm(s) prior to the deadline, or be subject to fines and associated damages. The industry is moving forward with T+1 settlement on May 28th, 2024 - whether you are ready or not.
In this blog series we’ll cover topics of relevance in this journey but for now let’s take a moment to put our current situation in perspective. So what is the timeline and what are the major milestones to fulfilling the SEC's T+1 initiative?
1. 1976-1995: The standard settlement cycle was transaction plus 5 business days!
2. 1995-2017: The settlement cycle reduces to T+3, thanks to a 20 year push by NSCC and DTCC, and associated advances in technology.
3. 2017-2024: The settlement cycle is again reduced, this time to T+2 in part because of the damage done during the 2008 financial crisis
4. May 2023: Efforts are underway to move from end of day batch processing to straight through processing of trades by moving to a settlement cycle of T+1. Two macro events precipitated this push; one being the trading of “meme-driven” securities and the resultant multi-billion dollar “short-squeezes” through 2020-2022, and the rise of nearly instantaneous settlement of cryptocurrencies on blockchain and distributed ledgers.
5. August 2023 - May 2024: Large scale multi-agency testing will be conducted, including trade execution via one or more trading venues (e.g., exchanges), trade capture, trade clearing and trade matching securities at NSCC, institutional trade matching, allocation processing as well as Confirm/Affirm processing in ITP, and trade settlement and corporate action processing in DTCC.
6. May 28, 2024 - T+1 is required to be fully implemented for compliance with the SEC.
With this context in mind you can really visualize the acceleration not only of the transactions themselves from T+5 to T+1 but also the acceleration of the acceleration. It took about 20 years to reach the T+3 increment, and another 22 to reach T+2. But only 7 to accelerate from T+2 to T+1. And even as developers and operations are working to make T+1 a reality, the SEC is already in discussions about moving to T+0, meaning transactions completed on the day of trading.
But one milestone at a time - let's stay focused and tackle our T+1 compliance milestone!
“Think of digital transformation less as a technology project to be finished than as a state of perpetual agility, always ready to evolve for whatever customers want next, and you’ll be pointed down the right path.”
- Amit Zavery, VP and Head of Platform, Google Cloud
Evolven has extensive experience in working with the financial services sector providing cost effective solutions for IT configuration, change and risk management solutions to development, security, and operations teams.
Our strong credentials in observability will be critical to organizations as trade volumes grow under T+1 and systems are stressed at unprecedented scale, requiring capabilities in near real time root cause analysis and drift detection. In the short term as organizations are developing toward these accelerated transaction cycles Evolven’s expertise in Configuration Risk Intelligence (CRI) and the detection of unauthorized changes as well as drift or inconsistencies between development and pre-production systems will be vital to making sure processes are followed, and systems are both secure and performant. Organizations will need to be able to verify configurations in test environments match those that were developed, and that the tested configurations are the ones that are eventually deployed.
Once the May 28, 2024 go live date is reached the observability provided by Evolven’s CRI will help ensure that transactions continue flowing across scaled systems that are highly-available and consistent at all times.
In our next blog post we’ll dig into aspects involved in developing the infrastructure and code that will carry T+1 transactions. We’ll look into what the current systems predominantly look like from an architecture perspective, what will need to change, and how Evolven will assist in managing those changes and risks over the next 13 months of the T+1 Transition.
Please contact us to learn more about Evolven and how it can help your enterprise.