U.S industry plots move to T+1

By the end of September, U.S. securities industry trade groups expect to have a plan to reduce the securities settlement cycle to T+1.

In a letter to the U.S. Securities and Exchange Commission (SEC) released Tuesday, the U.S. Securities Industry and Financial Markets Association (SIFMA), the Investment Company Institute (ICI), and the Depository Trust & Clearing Corp. (DTCC) confirmed their intention to work toward T+1 settlement.

“By the end of the third quarter of 2021, we expect to finish the analysis and begin developing the plan outlining the necessary steps and time frames for moving the industry to T+1. The plan will include an industry transition communication plan, a transition time frame, and appropriate planning and testing,” it said.

The groups reported that they also considered the feasibility of moving to same-day settlement (T+0), but concluded that this would be “more complex than simply removing an additional day from the cycle and would require re-engineering how securities trade and settle.”

Among other things, this could include requiring retail investors to pre-fund their accounts and overhauling global settlements, FX, margin investing and securities lending, which could potentially create a competitive burden for smaller firms and vendors.

“A requirement that all activity be completed in one business day of perhaps 12 hours or less would also impact the ability to complete non-automated activity, which could expand the rate of trade fails in the system, leading to increased risk,” it said.

As a result, the industry groups intend to focus on moving to T+1, which already represents a “significant undertaking,” it said.

“We believe shortening the settlement cycle to T+1 will increase the overall efficiency of the securities markets, mitigate risk, create better use of capital, and promote financial stability, provided the appropriate balance is achieved between increasing efficiencies and mitigating risk,” it said.

Earlier this year, the Canadian Capital Markets Association (CCMA) said that it would also review a potential move to T+1 in Canada, and that it has participated in discussions with the U.S. industry groups about reducing the settlement cycle.

The CCMA has led Canada’s previous efforts to reduce settlement cycles on the same timetable as the U.S. market — going from T+5 to T+3 in 1995, and from T+3 to T+2 in 2017.

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.