Feb. 14, 2023
Feb 14, 2023, Hi Sai – This is pretty close to the wire, but we wanted to make sure you and the Chairman are aware of Schwab’s view on the March 2024 implementation date for the move to T+1 ahead of the open meeting tomorrow. Schwab strongly supports the move to T+1 but we have concerns about risks the March deadline creates and we would ask to move the date to September 2024. We have concerns around three main areas: 1. Testing – The importance of a sufficiently long testing time period to ensure a smooth transition a. The move to T+2 settlement was successful in part due to the 18 months of industry planning, testing and coordination. b. More extensive changes are needed to support the move to T+1 than were needed for T+2. c. With the move from T+3 to T+2, most of the industry continued to rely on overnight batch processes, in most cases that will not be possible for the transition to T+1. d. The T+1 change creates the need and opportunity to reduce our dependency on overnight batch and bring more processes, tools, and reporting to same day and in some cases real time. e. Significant testing will be required to accommodate the NSCC and DTCC file timing and impacts to our internal files, cycles, systems and processes as well as upstream and downstream vendor testing. 2. Timing – Challenges created with the proposed March 2024 date a. Tax Season: Deploying during the middle of tax season creates unnecessary risk and change management considerations both for broker dealers and our clients. This is the most intense time of the year for brokers in terms of client engagement and a period where Schwab normally freezes all systems changes to minimize operational risk. Facing the T+1 switchover at this time would create material incremental risks. b. Integration considerations stemming from TD Ameritrade acquisition: Schwab’s acquisition of TD Ameritrade closed in October 2020. We have been scaling our systems and preparing clients to migrate from TD Ameritrade to Schwab and are set to begin those activities in February of this year and complete in March of 2024. This complex process of migrating millions of clients to the Schwab platform has been extensively shared with the SEC and FINRA. The last group of clients that are scheduled to migrate in March of 2024 includes some of our most active trading clients. Supporting the transition to T+1 in March of 2024 would add significant risk and disruption to this well-established timeline. Additionally, this would require Schwab to bring the legacy TD Ameritrade platform into T+1 compliance only to shut it down shortly after the conversion. If the T+1 implementation dates move out to September of 2024 we avoid this overlapping risk and significantly reduce our development and testing efforts. 3. Global Considerations - Our understanding is Canada has also requested a Q3 2024 timeframe to align the US and Canadian markets transition to T+1 to benefit investors and to reduce the overall level of industry change and to streamline testing. We strongly support this type of coordinated cross-border industry/regulatory outcome. Again, we strongly support the move to T+1, but also want to ensure Schwab is able to allocate the proper testing and change management framework for this material change. Moving the deadline to September 2024 when the rule is adopted tomorrow will assure industry this positive change will take place in an orderly way. Please feel free to contact Jason Clague, Jeff Star or Staci Sullivan (all copied above) if you have any questions. Best. Peter Roberson Peter Roberson Charles Schwab & Co.