The U.S. mutual fund industry is preparing to join equities, corporate and municipal bonds, and unit investment trusts (UITs) in shifting from a three-day (T+3) to two-day (T+2) settlement cycle on September 5, 2017. This change, which means participants will compress into just two working days the sequence of processes they currently conduct in three, will reduce a number of risks for individual investors and the financial markets as a whole, including credit risk, market risk, and liquidity risk and, as a result, systemic risk.
“Mutual funds present a unique challenge, even though our systems already have the flexibility to settle funds on different dates,” explained Josephine Torelli, DTCC executive director, Wealth Management Services. “In today’s environment, although mutual funds transmitted through NSCC’s Fund/SERV® system generally settle on a T+1 basis , certain transactions settle T+3 based on the type of mutual fund and/or trading relationships between funds and their distribution partners.”
To ease the burden for clients, DTCC has been reviewing and identifying relevant security IDs in the Fund/SERV® masterfile for mutual funds that will be systematically updated to reflect T+2 settlement. Of over 38,000 security IDs potentially identified by very specific criteria, approximately 26,000 will be updated from T+3 to a T+2 settlement cycle over the conversion weekend on Saturday, September 2, 2017 making them eligible for T+2 settlement on Tuesday, September 5.
A qualifying fund or a specific security can be excluded from the systematic update to T+2; to accomplish this, the fund is required to list each security ID to be excluded on a new T+2 Mutual Fund Security Exclusion Form. The completed form must be submitted to the NSCC [email protected] mailbox, and all exclusions must be received by August 18, 2017.
“The financial services industry is moving deep into T+2 testing now,” said Torelli. “We advise those organizations that maintain their own internal security masterfiles to store settlement dates also update their records accordingly.”
For more information about T+2 and mutual fund settlement dates, please see important notice #a8297 or contact your relationship manager.