As the industry moves forward with key T+1 milestones, Capco continues to help firms evaluate the impact of T+1 to themselves and their clients, and to implement the necessary technology, process, and or personnel changes to transition smoothly. With the DTCC T+1 testing schedule fast approaching, here is everything you need to know about participating in and deriving maximum value from industry testing. 

While participation in the T+1 industry testing is optional, it is highly recommended to ensure operational readiness on or before conversion week. The testing provides the opportunity to run trading scenarios through DTCC subsidiaries impacted by T+1 (ITP, NSCC, and DTC), as well as full trade lifecycle tests on US exchanges (Nasdaq, CBOE), and options exercise and assignment testing with the Options Clearing Corporation. For participants, it is recommended to align with key customers and service providers to share testing insight and build counterparty confidence in the transition. 

DTCC will offer two testing environments, one for T+1 and one for T+2 testing. T+1 testing will be conducted in the existing DTCC testing environment (PSE U), and T+2 testing will be conducted concurrently in a newly developed testing environment (PSE A). Testing participants will need to ensure connectivity to the testing environments as well as the exchanges (or OCC) they intend to run testing scenarios through. Participants will also need to secure subscriptions to ITP, NSCC, and DTC if needed, and ensure proper setup of input/output files, MQ/ISO messaging, and any needed web applications. DTCC has recommended certain testing scenarios, and testing participants should develop their own scenarios for the asset classes that are most applicable to them. These scenarios should dictate which of the above connectivity and setup measures would be needed. To initiate the setup process, forms should be submitted to DTCC.  DTCC has published detailed connectivity instructions available at http://www.dtcc.com/ust1.

Testing will be conducted over the course of 21 bi-weekly testing cycles beginning August 14, 2023, through May 31, 2024. Various ex-dates, corporate actions events, expirations, holidays, etc., within the test cycles will provide opportunities to test situational scenarios around particular calendar events. DTCC has created an initial list of suggested scenarios and plotted them according to which cycle would provide the best opportunity for testing. Scenario coverage includes but is not limited to NSCC ETF create/redeems, OCC trades, corporate actions, double settlement day, and ITP. The ITP scenarios are of particular interest, since ITP functionality has expanded significantly since the move to T+2, especially around Central Trade Matching (CTM) and Tradesuite ID capabilities. Changing deadlines for allocations and affirmations may increase customer use of ITP’s Match to Instruct and Auto-affirmation services, generating more interest in scenarios testing these features. 

DTCC is also supporting testing for the full corporate action’s lifecycle, including support for ISO 20022 testing for corporate actions. DTCC will specify CUSIPs to align corporate actions testing to specific relevant dates to test for announcements, instructions, allocation of corporate actions proceeds, reconciliations, and more. While ISO 20022 will be available for testing, it is not required. 

Securities Lending has been a point of focus for industry participants due to changes to the timeline to issue recalls. Securities Financing Transactions (SFT) Clearing is an NSCC service introduced in 2022 to facilitate borrowing and lending of securities with pre-matching and automated recall processing. This service could experience significant subscriber growth, and SFT dashboard testing may therefore be of particular interest. 

These testing considerations are not comprehensive, and firms will likely have very different interests and approaches depending on the asset classes and capabilities in focus. Many firms are still evaluating the impact that T+1 will have on their business and operations, and as of April 2023, DTCC considered these firms to be behind from an industry milestones perspective. Ideally, business unit T+1 accountable executives will already have received and reviewed requirements to achieve technology, personnel, and process objectives to enable T+1, and implementation work should be ongoing. The key next step will be scenario development, including an analysis of DTCC scenarios as well as scenarios developed in house to test for business specific critical processes. These scenarios should be aligned to specific cycles that provide the relevant events for applicable testing. 

To achieve the most benefit from the testing cycles, and be ready for T+1 go live, proper governance and tracking will be essential. Experienced program management should incorporate lessons learned from T3 to T2 testing where applicable, and bring deep knowledge of the challenges and priorities firms are facing. There is no “one size fits all” to define the scope and desired outcomes of T+1 testing, but with a well-documented and targeted approach, and collaboration among customers and service providers, a seamless transition to achieving the benefits of accelerated settlement are within reach.