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Ready for T+1: The Final Countdown

Next week, the standard settlement cycle for most broker-dealer transactions in securities will shorten from the current two business days after the trade date (T+2) to just one day (T+1). This Friday, May 24, is the beginning of the transition weekend to the shorter settlement cycle. Tuesday, May 28 will be the first trading day under a T+1 timeframe. Wednesday, May 29 will be a double settlement day, with trades from Friday settling T+2 and trades from Tuesday settling T+1. There are many moving pieces and many, many operations professionals involved in this transition.

The question of the week is this: will the industry be ready? And the answer is, unequivocally, yes.

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. In early 2021, we formally initiated the effort to accelerate the settlement cycle to T+1. 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.

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. Put simply, 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.

The industry has been working diligently and with precision to prepare itself for this transition. SIFMA has worked closely with our industry partners, as well as our members, regulators, and other market participants on identifying and executing the steps necessary to achieve T+1 settlement next week.

SIFMA has been leading a working group of over 900 members, including buy and sell side firms, as well as smaller subgroups, on a variety of issues related to the change. The work of this group has been instrumental in ensuring industry preparedness, and helped inform discussions on the policies and procedures option, same day affirmation requirements and record keeping aspects of the SEC rule. It has also helped us understand where more work needs to be done and how to address issues that have arisen. In addition, DTCC issued a detailed testing framework and has engaged in regular testing with the industry.

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.
  • DTCC’s T+1 Conversion Guide outlines the timing changes, and impacts on products and markets.

In this final week before the transition, each entity will continue to assess its readiness against where it needs to be on May 28 and address any outstanding items. Testing, communicating with counterparties and vendors, ensuring affirmations, reviewing policies and procedures, and engaging with SIFMA’s T+1 Command Center will all be hallmarks of the last mile on this journey. The move to T+1 offers several benefits and the industry is ready for a smooth transition to the new settlement cycle.

Author

Tom Price is Managing Director and Head of Technology, Operations, and Business Continuity for SIFMA.

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