The acceleration of the settlement cycle is currently a top priority for global financial services providers. U.S. and Canada jurisdictions will be moving to T+1 next with a May 2024 deadline, and many providers are already taking the necessary steps to prepare for the change.
For jurisdictions outside the U.S. and Canada, the impact of the May 2024 deadline will be felt by foreign investors in U.S. assets as regulatory changes will affect all investors that transact in U.S. assets, regardless of their domicile.1 Beyond May 2024, there is momentum building in other jurisdictions, e.g., Europe, to consider a change to T+1 within their native exchanges and assets.
Global financial services providers are expected to be laser-focused on the U.S./Canadian deadline and associated activities. In the short-term:
- There will be a focus on trades settling in the U.S. and Canada markets to adhere to the May 28, 2024 deadline by performing impact assessments of the volume of these trades and finding solutions to ensure that any delays could be addressed quickly, e.g., corporate actions, breaks in affirmation and confirmation, and trade populations that are currently settling after T+2.
- Global organizations may look to move resources closer to North America to benefit from time zone advantage and/or increase automation and straight-through processing.
- For entities with a global presence, the focus will be to set up a plan for transparent global communication.
- There will be a need to identify a resolution plan for FX and funding issues that may arise from different settlement periods across the globe.
In the longer term, the rest of the world will look to implement their own settlement compression initiatives. Many countries have started defining their plans for T+1:
- The UK established a “T+1 Accelerated Settlement Taskforce” on 9 December 2022 to assess the impact of the T+1 implementation with the goal of publishing the initial findings by December 2023 and a full report with recommendations by December 2024. The current plan is to perform an impact assessment and have the positive motivation to move to T+1 for global coherency.2
- The EU, led by The Association for Financial Markets in Europe (AFME), has also recently announced that a T+1 industry task force will be established to assess the cost, benefit, and feasibility of the T+1 implementation. The implementation timeframe is unknown, mainly due to the greater complications in the EU with multiple exchanges and Central Securities Depositories (CSDs) that will need to be considered.3
- For APAC, there is currently momentum to push toward T+1. There are discussions surrounding the T+1 implementation, but the conversations are premature to determine a timeline.4
- On January 27, 2023, India implemented the T+1 settlement cycle, where the final batch of 5,200 stocks transferred. The implementation was performed in phases where the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE) started implementing T+1 with the smallest 100 stocks (by market capitalisation).5
- China is already functioning on a T0/T+1 settlement cycle for its equities. Stocks without DVP are currently settled on T0, while DVP is settled on T+1. This was driven in part by the implementation of DVP reforms in 2022 for institutional trading.6
Preparing for T+1
There is clear momentum toward T+1 across global markets, and T+1 implementation will be an ongoing transition that participants must navigate over the coming years. To prepare for coming changes, organizations should consider the following:
- Collaborate across jurisdictions to make sure your organization is current with recent regulatory changes.
- Calculate the impact of any possible penalties for failed settlements in each jurisdiction.
- Perform impact assessment of trade settlements via location and match to regulatory changes.
- Assign process responsibility occurring outside of the location’s working hours to locations within their working hours—a handover process at the end of each trading day is recommended.
- Identify areas where technology can be deployed to further automate settlement processes.
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- 1SEC Finalizes Rules to Reduce Risks in Clearance and Settlement, SEC.gov, February 15, 2023.
- 2Accelerated Settlement Taskforce, gov.uk, December 9, 2022.
- 3AFME Announces Establishment of T+1 industry Taskforce, afme.eu, March 2, 2023.
- 4Is Asia Pacific Ready For T+1 Settlement? dtcc.com, June 22, 2022.
- 5India Trumpets T+1 Settlement, flow.db.com, March 23, 2022.
- 6Implications of Diverging Settlement Standards, dtcc.com, August 6, 2020.