Riskon in the News

October 11, 2001
“Securities industry to delay fast trade settlement”

by Mark Weinraub

The securities industry plans to push back the date it has set for cutting the settlement time of trades because the weakening economy and the Sept. 11 air attacks on the United States has made it hard for firms to meet the deadline, an industry trade group said on Thursday.

The new target for implementation of the project (which cuts the settlement time of trades to one day from three (is in the first six months of 2005, Securities Industry Association Dan Michaelis told Reuters.  The previous schedule had aimed for one-day settlement, called T+1, in mid 2004.

“The fact is that it was a very aggressive schedule to begin with,” Michaelis said.  “The decision came about after evaluation of how the project was going.”

The industry is expected to lay out $8 billion to pay for the technological upgrade that will allow the faster settlement time to materialize.  That cost had become prohibitive in a time of declining profits for many Wall Street firms as trading and banking revenues dry up.

In addition, the attacks on the United States that destroyed the World Trade Center towers decimated the computer systems of many brokerage firms.

“With what's happened in lower Manhattan, I think firms are really focusing on trying to get their infrastructure back to Sept. 10,” said Larry Tabb, vice president at the TowerGroup technology research firm.  “They don't really have the bandwidth to start rebuilding their software infrastructure to make the T+1 deadline.”

Currently, investors have three days to settle a trade made in the stock and corporate bond markets, while treasury bond trades typically settle by the next business day.  By cutting the time lag, the industry and its regulators are aiming to reduce the current daily settlement risk exposure of asset values declining between the time an investor makes a trade and has it settled.

But although the project has been planned for years, not all firms had been working hard enough to upgrade their systems for the 2004 schedule, said Barry Honig, president of management consulting firm, Riskon, Inc.

“I think some firms were more ready than others,” he said.  “I think some firms had absolutely next to no chance of being ready.”