In February, the U.S. Securities and Exchange Commission (SEC) announced May 28, 2024 as the implementation date for the move to T+1 settlement for transactions in US cash equities, corporate debt and unit investment trusts.
On the heels of this announcement, over 1,500 global clients and industry participants joined DTCC’s latest "Accelerating to T+1" series virtual forum on February 28, 2023, to learn from a panel of industry experts about how global custodians can support a T+1 environment.
Related: Discover More from the Accelerating to T+1 Series
Below are highlights from the discussion:
Key Dates and Rules
With the implementation date for US T+1 settlement set for May 28, 2024, a few important dates include:
- Monday, August 14, 2023: DTCC’s bi-weekly testing schedule begins. (DTCC’s full test calendar, updated to reflect latest details and announced implementation date, is available on UST1.org)
- Friday, May 24, 2024: Final day of US T+2 settlement
- Tuesday, May 28, 2024: First day of US T+1 settlement
- Wednesday, May 29, 2024: Special double settlement day (with activity from two trading days settling on a single day)
The Canadian market has indicated it plans to move to T+1 on the same day as the US. However, Memorial Day in the US, Monday, May 27, 2024, is not a holiday in Canada. The Canadian market is still finalizing its T+1 implementation plan.
The move to T+1 affects all firms that trade in the US, not just custodians. For example, Broker-Dealers need to develop processes that reasonably ensure trade allocation, confirmation and affirmation of institutional transactions as soon as technologically practicable but no later than the end of trade date. Registered Investment Advisers need to develop and maintain records of each confirmation received. Central Matching Service Providers (CMSPs) need to establish, implement, maintain, and enforce polices that facilitate straight-through processing. A complete list of the requirements included in the SEC T+1 Rule can be found here.
Client Focus for Custodians
Although custodians are not part of Rule 15c6-2, they need to ensure their own clients are sending instructions on a timely basis or self-affirming by the required time. Areas to focus on include:
- Client Readiness: Most larger asset managers and broker-dealers have their plans well underway, however, many mid- and small-tier firms are lagging.
- Impact of Non-US assets: Firms need to understand misalignments due to changes in ADRs and ETFs that contain non-US securities.
- Impact of New Regulation: All clients, even clients outside the US, need to review the rules to ensure a complete understanding of their commitments to adhere to the new regulation.
Preparing for Changes
Training and outreach are key to ensuring a successful transition, both within and outside the US. Removing a full 24-hours from the trade lifecycle will require firms across the globe to make significant operational and technical changes. Clients can begin preparations by:
- Assessing operating models
- Finding the causes of exception processing as the window to correct failed trades is small
- Considering outsourcing where appropriate
- Considering the adoption of industry standards and solutions
- Evaluating systems for securities lending and focus on inventory management
- Engaging with custodians, industry associations and working groups
Whether a firm uses their custodian for affirmation or self-affirms, proper instructions are vital. DTCC’s CTM Match to Instruct (M2i) is a building block for both the buy and sell side, allowing automated affirmation and creating a more efficient model that reduces the need to repair and the risk of fails.
A Global T+1 Future
Given the global nature of today’s securities markets, misalignments will inevitably happen. The best remedy is to be well-prepared, as the move to T+1 in the US has sparked discussions around the globe. India already moved to T+1, while Canada will move with the US and Mexico has initiated conversations. The UK has also formed an industry task force with initial findings expected by the end of the year and further discussions are anticipated in Europe. Australia, Japan, Hong Kong and Singapore are watching the situation closely.
All firms need to assess now to truly understand the end-to-end impact of the move. By understanding the rules and what is expected and ensuring that technology, software and vendors are tested, firms can be ready to go for next May’s implementation date.
Next Event in the Virtual Forum Series
The next event in this highly successful virtual series will be held on March 14, 2023, where Industry Readiness will be the topic of discussion. The event will feature an update from a panel of experts who will discuss new industry research on how global firms are preparing for T+1. Interested firms can register here.
View UST1.org for all news, documentation and information related to the industry's effort to accelerate the U.S. securities settlement cycle.