Shortening the Settlement Cycle
Market resiliency is a top priority for SIFMA and its members. Enhancing our securities settlement process is critical to the continued resiliency of our markets and market operations.
The T+1 settlement cycle for corporate bonds, municipal bonds, and equities transactions in the U.S. is now in place.
The financial industry transitioned to a T+1 settlement cycle in the United States on Tuesday, May 28, 2024, and in Canada on Monday, May 27, 2024. There are many moving pieces and many operations professionals involved in this transition.
Transition Dates
- United States: Tuesday, May 28, 2024
- Canada: Monday, May 27, 2024
Why We Moved to T+1
There are several reasons to shorten the settlement cycle, including:
- Shortening the time between the trade date and settlement date reduces risk in the system. Fewer days from trade to settlement means lower risk.
- Faster settlement means decreased daily average capital requirements. Firms can put that capital to better use. It also increases liquidity in the system.
- A large-scale project of this type, which impacts every financial institution, also helps drive innovation, automation, and process improvements. There is a benefit to streamlining operations, and to realizing greater efficiencies and making our operational systems more modern and resilient.
Early Benefits of Note
Some of the key benefits we have already seen:
- In a T+1 environment, the NSCC Clearing Fund decreased by US$3.7 Billion (29%) from the past quarter average.
- On first day of T+1 settlement, the CNS Fail Rate was 1.90%. This is a net reduction and lower than the May average of 2.01% for T+2 settlements.
- 94.55% of transactions were affirmed by the DTC cutoff time of 9:00PM ET on trade date. This represents a significant increase from the affirmation rate observed at the end of January (73%).
A Brief History of Settlement Cycles
Getting the U.S. markets to a T+1 settlement cycle has been a goal since the U.S. moved to T+3 from T+5 back in 1995 and from T+3 to T+2 in 2017. In 2020, as part of ongoing efforts to decrease risk in the system, SIFMA, DTCC and ICI – the same industry partners that worked on previous settlement cycle changes – started discussions to move to T+1 and formally initiated the effort in early 2021. In February 2022, the SEC issued a proposal to accelerate settlement to T+1, and that proposal was adopted as a final rule the following year. The industry has been working towards compliance ever since.
Key Resources
SIFMA and its industry partners have provided key resources for the industry to leverage ahead of the transition. These include:
- SIFMA’s T+1 Command Center, will provide conversion status information, transparency into the activity of other participants, and serve as a forum for issue identification and socialization. The T+1 Command Center’s support will be most active during the conversion period, from Friday, May 24 through Friday, May 31.
- The SIFMA, DTCC and ICI T+1 Playbook, a roadmap to accelerated settlement which outlines a detailed approach to identifying the implementation activities, timelines, dependencies, and risk impacts that market participants need to consider as they prepare for the transition. The Playbook also provides members with tools to assist them in the analysis and execution of their project management teams.
- SIFMA, CCMA and ISDA published a T+1 Settlement Cycle Booklet which provides summary information ranging from the scope of the transition, the final SEC Rule, and foreign exchange market considerations to the possible impacts to relevant securities and over-the-counter (OTC) derivatives transactions.
- SIFMA has developed through consultation with industry participants T+1 Dividend Processing FAQs, which includes how dividend processing will differ in T+1 compared to when the industry moved to T+2 in 2017; an example of how processing will work in T+1; how dividends for securities listed on multiple venues will be handled; and more.
- DTCC’s T+1 Conversion Guide outlines the timing changes, and impacts on products and markets.