With the US transition to a T+1 settlement cycle less than three months away, market participants must accelerate their preparations with a focus on enhancing operational efficiencies, including the achievement of same-day affirmation.

In the final T+1 rules, the US Securities and Exchange Commission instituted new requirements around same-day affirmation practices for both broker-dealers and certain institutional investors to help ensure timely settlement in a T+1 environment.

Broker-dealers are required to take certain actions so that 100% of all trades are affirmed as soon as technologically practicable and no later than the end of the trade date, as the Financial Industry Regulatory Authority (FINRA) has adopted in a recent regulatory notice.

In January 2024, the Depository Trust & Clearing Corporation (DTCC) published an affirmation report recommending that the industry affirm at least 90% of all trades by 9pm Eastern Time on trade date. This recommendation was based on an analysis of Depository Trust Company (DTC) submitted trades currently affirmed on T+1 that settle under the current T+2 timeline.

The analysis shows that in December 2023, 69% of transactions were affirmed by 9pm on trade date. In January, this number increased to 73%. As for specific market segments, as of the end of January 2024, the prime broker affirmation rate was 81%, investment manager auto affirmation (central match) rate was 92%, while the custodian or investment manager (self) affirmation rate was 51%.

To ensure preparedness and improve affirmation rates, DTCC urges market participants to leverage automated central trade matching solutions with workflows that automatically trigger trade affirmation. It also recommends the delivery of DTC-eligible securities directly to DTC for settlement when a trade match between an investment manager and executing broker is achieved.

At the same time, firms should ensure their buyside clients are aware of their responsibilities around same-day affirmation. “By automating post-trade processes, increasing communication with counterparties, and adopting best practices, industry participants will be better placed to achieve T+1, maintain existing market efficiencies, and contribute to a safer, more efficient marketplace,” says Val Wotton, managing director, general manager of institutional trade processing, at DTCC.