CSA proposes changes to enable T+1

As the securities industry girds for a shorter settlement cycle, the Canadian Securities Administrators (CSA) are proposing rule changes to facilitate the shift, and they have also decided against mandating faster settlement for investment funds.

Ahead of the planned transition from the current two-day settlement cycle (T+2) to one-day settlement (T+1) sometime in 2024, the CSA published proposed changes to the rules regarding institutional trade matching and settlement.

The proposed amendments “focus on facilitating the shortening of the standard settlement cycle for equity and long-term debt market trades,” the CSA said in its notice, adding that these changes may require market participants to revise their own procedures and processes.

The exact timing of the transition to T+1 remains up in the air. The U.S Securities and Exchange Commission initially signalled that the move should occur in the first quarter of 2024, but industry trade groups have advocated for Labour Day weekend in 2024.

The CSA indicated that its proposed changes are intended to align with the transition in the U.S.

At the same time, the regulators published a staff notice that indicates they aren’t proposing amendments to the investment fund rules that would mandate faster settlement in that sector too — a decision that aims to preserve flexibility for investment funds, given the different mechanics involved with settling fund trades.

“If the standard settlement cycle for listed securities moves from two days to one day in Canada, we are of the view that, where practicable, mutual funds should settle primary distributions and redemptions of their securities on T+1 voluntarily,” the CSA said in its notice.

“In our view, moving to T+1 would allow the mutual fund industry to improve investor and dealer cash-flow management, align with U.S. settlement cycles, and allow mutual funds to remain competitive from a settlement perspective,” the regulators said.

Yet, they acknowledged that requiring a move to T+1 settlement for investment funds “would present operational difficulties for funds that have a significant portion of their portfolio assets that settle at T+2 or longer.”

As a result, the CSA has decided to allow mutual funds the flexibility to “determine whether a T+1 settlement cycle can work for them,” it said.

Comments on the CSA’s proposed rule changes are due by March 17.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.