SRO proposes T+1 rule changes

The new industry self-regulatory organization (SRO) is proposing a series of rule changes that aim to facilitate the investment industry’s move to T+1 settlement next spring.

The proposals, which are out for comment until June 19, include revisions to both the trading rules and dealer rules to enable the industry to reduce the securities settlement cycle from the current standard of trade date plus two days (T+2) to T+1.

Earlier this year, the U.S. Securities and Exchange Commission adopted rule changes that will reduce the settlement cycle in the U.S. market, effective May 28, 2024.

The Canadian industry has signalled its intention to move to T+1 at the same time, given the close connections between the U.S. and Canadian markets.

Ahead of that move, the new SRO said it identified one definition in the trading rules and several provisions of the investment dealer rules that will need to be changed to reflect the shorter settlement cycle. The mutual fund dealer rules don’t need to be revised, it noted.

Last December the Canadian Securities Administrators also proposed their own rule changes to enable the move to T+1.

“The move to a T+1 settlement cycle will benefit dealers, clients and other industry stakeholders by improving the overall market efficiency and reducing credit, market and liquidity risks associated with securities transactions,” the SRO said in a notice spelling out the proposed changes.

“Dealers will also benefit from the reduced regulatory burden due to the removal of the requirement to file trade matching exception reports,” it said.

Dealers and other industry firms will incur costs to adapt their systems and processes to the shorter settlement cycle.

However, the SRO said these costs will be outweighed by the positive impacts of the proposed changes.

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.