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Strategies & Market Trends : The Final Frontier - Online Remote Trading -- Ignore unavailable to you. Want to Upgrade?

To: Wayners who wrote (8350)	7/27/2000 5:54:21 PM
From: LPS5	Respond to of 12617

Wall Street Puts Next-Day Settlement Savings at $2.7 Bln a Year New York, July 27 (Bloomberg) -- Securities and investment firms will cut annual costs by about $2.7 billion when they adopt a next-day trade settlement standard, an industry group said. Reducing the time it takes for securities and money to change hands won't come cheap, though, the Securities Industry Association said. It will cost about $8 billion, or at least $1 billion more than Wall Street's year-2000 computer upgrades. A so-called T+1 schedule would reduce the risk posed by partners who disavow trades or become insolvent, for example. ``A lot can happen between the trade date and settlement date, and it's not always good news,'' said John Panchery, a SIA vice president who conducted a study on the issue. The stocks, corporate and municipal bonds that take three days to settle, leave the industry faced with more than $1 trillion of potential risk to such losses, SIA said. Chopping off two thirds of the period would lower that exposure to about $375 billion. Some securities, including options and Treasury bonds, already settle in shorter periods. The conversion could occur by June 2004, the SIA said. Wall Street programmers have been preoccupied in recent years preparing computers to recognize 21st-century dates and quote stocks using dollars and cents rather than eighths and other fractions. Now, the technology staffs are focusing on the settlement period. ``This is far more complex,'' said Diane Frimmel, a Paine Webber Group Inc. executive vice president involved in the study. Complicating the project is the range of organizations involved, including dealers, investors and custodians. The institutions face varying costs and savings from the project. `Transformational Change' ``The move to T+1 is what we call a transformational change,'' said James Honohan, an Andersen Consulting partner who helped assemble the study. ``You have to change the fundamental structure of the participants in the industry.'' Increased activity in the U.S. stock market has mandated that Wall Street react as quickly as possible, Panchery said. ``If we don't, we can't go on doubling our volume. Something's going to break.'' Unlike the switch in 1995 to three from five-day settlement, the latest initiative isn't at the behest of the Securities and Exchange Commission or other regulators, said Panchery. ``This is business-driven; the industry wants this.'' Abbreviating the process could help Wall Street handle the rising quantity of trading. It might, for example, allow the industry's $2 billion ``clearing fund,'' which insures against settlement losses, to be cut by a third, the SIA said, citing Depository Trust & Clearing Corp. figures. More change may lie ahead. The industry might decide to pursue immediate settlement, according to the SIA. For now, a practice called netting makes that type of speed unattractive. In netting, a firm's trades in each security are tallied a day before settlement, dramatically reducing the number of transactions required. Before opting for immediate settlement, said Panchery, ``we need to take that system and make it more real-time, make it more intra-day.'' The SIA's report was based on 56 companies' responses to a survey and interviews with New York Stock Exchange and National Association of Securities Dealers regulators. The NASD is the parent of the Nasdaq Stock Market and the American Stock Exchange. The SIA is also looking at other issues in connection with the move to next-day settlement, including electronic signatures, physical securities and investor-dealer relations. © Copyright 2000, Bloomberg L.P. All Rights Reserved.