DTCC Announces First Phase of Settlement Exposure Reduction
DTCC will focus on settlement optimization, looking to reengineer how it processes trades before end of day.

The DTCC announced its timeline for settlement optimization—which aims to shorten settlement exposure to 1.5 days to half a day from trade—with the first piece set to be implemented in the third quarter of next year. The company decided to take a phased approach based on feedback from the Settlement Optimization Working Group.
Settlement optimization will begin with night cycle reengineering, which will process settlement batches overnight to increase settlement rates the next morning. Currently, settlement rates are around 45 percent for transactions through a sequential algorithm, but the DTCC estimates this will increase to 90 percent. It will introduce an algorithm that will evaluate transaction obligations, available positions, transaction priority instructions and risk management, and determine the best processing order.
Night cycle reengineering must be approved by regulators before launch.
A white paper released by DTCC in January identified two proposals hoped to further bring down settlement exposure—”accelerated settlement,” which lets clients request trades to settle faster, and settlement optimization.
DTCC managing director and head of clearing agency services Murray Pozmanter said in a statement that night cycle reengineering is part of the firm’s vision to bring more efficiencies.
“Night cycle reengineering will create and lead to a number of industry benefits including improved processing efficiency, reduced operational risk and improved intraday settlement finality,” Pozmanter said. “With this plan, we are beginning to bring our vision for the evolution of the US equities market structure to life.”
More trades settled during the night cycle is a prerequisite before the second phase of settlement optimization. The next phase will be the introduction of morning settlement in addition to the end-of-day settlement done today. The idea is to move settlement of trades from the afternoon to before the market opens so the risk is reduced.
DTCC president and CEO Michael Bodson said the move to settlement optimization is a reaction to how complicated the process has become.
“We’ll have to do more work of course but the industry has complicated the process too much so we need to attack inefficiency in every way,” Bodson said during the annual Securities Industry and Financial Markets Association operations conference in Phoenix, Arizona.
Shortening settlement risk exposure has been a concern for years. The industry moved to a shortened settlement cycle—trade date plus two days, or T+2— in September last year after 20 years of longer cycles. The DTCC notes that settlement optimization will shorten exposure without further reducing the settlement cycle, which would require industry agreement.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@waterstechnology.com or view our subscription options here: http://subscriptions.waterstechnology.com/subscribe
You are currently unable to print this content. Please contact info@waterstechnology.com to find out more.
You are currently unable to copy this content. Please contact info@waterstechnology.com to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@waterstechnology.com
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@waterstechnology.com
More on Trading Tech
Trading Technologies looks to ‘Multi-X’ amid vendor consolidation
The vendor’s new CEO details TT’s approach to multi-asset trading, the next generation of traders, and modern architecture.
Waters Wavelength Ep. 311: Blue Ocean’s Brian Hyndman
Brian Hyndman, CEO and president at Blue Ocean Technologies, joins to discuss overnight trading.
WatersTechnology latest edition
Check out our latest edition, plus more than 12 years of our best content.
A new data analytics studio born from a large asset manager hits the market
Amundi Asset Management’s tech arm is commercializing a tool that has 500 users at the buy-side firm.
How exactly does a private-share trading platform work?
As companies stay private for longer, new trading platforms are looking to cash in by helping investors cash out.
Accelerated clearing and settlement, private markets, the future of LSEG’s AIM market, and more
The Waters Cooler: Fitch touts AWS AI for developer productivity, Nasdaq expands tech deal with South American exchanges, National Australia Bank enlists TransFicc, and more in this week’s news roundup.
Inside the company that helped build China’s equity options market
Fintech firm Bachelier Technology on the challenges of creating a trading platform for China’s unique OTC derivatives market.
Experts say HKEX’s plan for T+1 in 2025 is ‘sensible’
The exchange will continue providing core post-trade processing through CCASS but will engage with market participants on the service’s future as HKEX rolls out new OCP features.