U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

Office of the Chairman:
Letter to Industry, Regarding T + 1


Dear Sir/Madam:

Over the past several years, the U.S. securities industry has tackled challenges and embraced innovations in technology that have kept our markets the envy of the world. I am writing to you about another challenge facing the industry -- shortening our settlement cycle from three days (T+3) to one day (T+1).

The current T+3 settlement cycle was achieved in June 1995 after an experience with times of market turbulence made the risks of a five-day settlement cycle abundantly clear. T+5 allowed too much time between trade execution and settlement for a trading party to become insolvent or for the value of a trade to deteriorate. The SEC is now working with the securities industry to move to T+1 and to automate each step in the settlement process ("commonly referred to as straight-through processing"). These initiatives should help ensure that the U.S. securities markets are prepared to handle the expected increase in trading volumes and remain the leader in the world's markets.

A number of industry groups, led by the Securities Industry Association, have formed T+1 committees and have issued whitepapers that focus on various aspects of the settlement process. In the SIA's Business Case Model report, the major conclusions are: (1) moving to T+1 will reduce settlement exposure by 67%; (2) moving to T+1 will cost approximately $8 billion but will save the industry $2.7 billion a year; and (3) the industry can shorten the settlement cycle to T+1 by June 2004. (The Business Case Model report is available on the T+1 section of the SIA's website at: http://www.sia.com/t_plus_one_issue/pdf/BusinessCaseFinal.pdf.)

I believe that achieving T+1 and straight-through processing is critical to the continued success of our markets. To achieve T+1, all market participants must join in the industry's T+1 efforts and begin preparing their own internal systems for the move to T+1. June 2004 is not far away when we consider the firm-specific and industry-wide changes needed to reach the T+1 goal. The shortened cycle will affect all facets of the industry including broker/dealers (sell-side), banks, transfer agents, custodians, investment managers and institutions (buy-side). The SIA's Business Case Model report identifies ten building blocks to achieve T+1 settlement and a timeline of critical checkpoints. The work has begun and all industry enhancements must be completed by mid-2003 to allow for one year of processing and testing in a T+3 environment utilizing the new infrastructure.

I know that the changes recently sweeping our markets have presented you with a relentless stream of formidable and urgent challenges. The industry's substantial and continuing effort to preserve and enhance the integrity of our markets' infrastructure is both remarkable and commendable. I have no doubt that, working together as we have in the past, we will be able to meet the challenge of T+1 successfully and build an even more enduring market infrastructure. Toward that end, I urge you to focus closely and promptly on what changes your firm must make to prepare for T+1 and to dedicate the resources necessary for this effort.

I also welcome your thoughts on this initiative. If have any questions, please contact Larry Bergmann, Senior Associate Director, Division of Market Regulation, at (202) 942-0770.


Arthur Levitt