A group of U.S.-based financial companies has recommended a two-year delay in a program to improve efficiency and reduce risks in securities trading.
By recommending what many bankers believe is a more realistic schedule for changes that will sharply affect systems and operating procedures in their trust operations, the report may actually hasten the move to a more efficient securities-clearing system, observers said.
Many large trust companies will have to invest millions of dollars to upgrade their computer systems in order to comply with the proposed rules, said Thomas Abraham, a consultant based in New York.
40% Time Saving
"The period between the securities trade and the actual exchange of value will be decreased by 40%," said Marshall Carter, chief executive officer of State Street Boston Corp. "It will remove risk from the system. That is the major gain."
The plan, sponsored by U.S. commercial banks and broker-dealers, is part of a larger program detailing rules for the uniform operation of security settlement and clearance systems worldwide. The Group of 30, an international consortium of commercial bankers, and securities executives, and others, sponsors this larger program.
Many U.S. companies argued that the timetable set by the international group would be much harder for them to meet than for firms based overseas.
The report's value "is that it brought together the widespread views of industry behind some consensus," said Mr. Carter.
SEC Commissioned Study
Last fall, Securities and Exchange Commission chairman Richard Breeden commissioned a U.S.-based task force to look into issues raised by the Group of 30. The task force reported in late May.
The report essentially reinforced Group of 30 recommendations but explored the issue of risk more deeply and suggested timetable leniency for U.S. companies. The SEC put out the report for 90 days of public comment, starting June 22.
"The impact on trust will be the need to upgrade technology and operating procedures," said Mr. Abraham. "It's going to be a big deal, and an expensive proposition" for many.
Faster Funds Settlement
Many systems have grown up in a patchwork fashion, with different software handling functions that must be coordinated in future. Large institutional investors with many trading systems may also have to spend in the "low millions" on upgradings, Mr. Abraham said.
Under two key guidelines, a trade could be settled three days after the transaction, with funds good on settlement day. Funds now are paid securities sellers a day or more after settlement.
The move to same-day funds settlement would squeeze some float out of corporate trust business, where about half of trust income has been earned.
The National Automated Clearing House Association has proposed to end the right of consumers to rescind funds transfers for securities transactions. If its board approves, the proposal would take effect in April.
