Good article about T+1 from Securities Industries Association...
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http://www.sia.com/press/html/pr-tplusone.html
SECURITIES INDUSTRY'S SHIFT TO T+1 WILL BENEFIT INVESTORS, REDUCE RISK, AND SAVE MONEY
New York, N.Y., Thursday, July 27 - Compressing the trade settlement cycle from the existing three days (T+3) to one (T+1) will enhance the efficiency and effectiveness of the U.S. markets, according to a study commissioned by the Securities Industry Association. The study, prepared by Accenture and The Capital Markets Company, estimates an annual savings opportunity for the industry of approximately $2.7 billion. These savings will be realized through resulting changes such as redeployment of resources, improvements in the matching and settlement process, reduction in the need for physical certificates, and improved methods for the delivery of prospectuses.
"Investors will benefit from the industry's more efficient processing infrastructure, which will reduce their exposure to risk," said John Panchery, vice president of SIA and T+1 project manager.
The entire industry will spend an estimated $8 billion to prepare for T+1, which includes testing and the necessary systems changes. Based on the projections of cost savings, this investment will be recouped in three years. "Currently, there is approximately $1 trillion worth of trades outstanding every business day," said Panchery. "Locking trades in earlier in the cycle will not only significantly reduce the risk involved, but free up industry resources for other uses. Streamlining this process is critical if the industry is to continue to deliver the high level of service investors demand."
The business case also identifies ten "building blocks," changes in the existing processing environment that must be implemented to successfully move from T+3 to T+1. These include: modification of firms' internal trade processes to comply with compressed settlement deadlines; submission of near real-time trade information by the exchanges/institutions; and, the use of electronic means of payment by retail customers.
The study estimates that the conversion will take 3.5 years from the time the industry begins the necessary changes to completion. Assuming a start in the fourth quarter 2000, the majority of the building blocks should be completed by the first quarter 2003, at which point the benefits of the conversion will have begun to be realized. The next 15 months would be devoted to full industry testing and stabilization, which would result in project completion in June 2004.
"Based on the interviews we conducted, and the responses we received from the T+ 1 survey, we feel that this is a reasonable target date," said Diane Frimmel, executive vice president of PaineWebber Group, Inc. and chair of the SIA's T+1 Business Case Subcommittee; the subcommittee operates under the auspices of the SIA T+1 Steering Committee, which is co-chaired by Art Thomas and Diane Schueneman of Merrill Lynch.
Accenture and The Capital Markets Company interviewed industry executives by means of a web-based T+1 survey. Fifty-six firms, representing both retail and institutional broker/dealers, custodians, and asset managers responded to the survey, which asked about the firms' readiness and systems changes necessary for the conversion. The respondents represent 75 percent of the equity capital of SIA member firms and 20 percent of assets under management industry-wide. Of the 20 firms whose input was deemed critical to the survey, the response rate was 100 percent. The major exchanges, key regulators, and the Depository Trust And Clearing Corporation provided input through interviews.
Questions about SIA's T+1 efforts should be directed to John Panchery at (212) 618-0559 or
jpanchery@sia.com.
The Securities Industry Association brings together the shared interests of more than 740 securities firms to accomplish common goals. SIA member-firms (including investment banks, broker-dealers, and mutual fund companies) are active in all U.S. and foreign markets and in all phases of corporate and public finance. The U.S. securities industry manages the accounts of approximately 50 million investors directly and tens of millions of investors indirectly through corporate, thrift, and pension plans. The industry generates in excess of $300 billion of revenues yearly in the U.S. economy and employs approximately 700,000 individuals.
