CSA moves on T+1; Europe urged to follow suit

As Canadian securities regulators adopt rule changes to facilitate a shorter settlement cycle next year, the U.S. fund industry is calling on European regulators to follow along sooner rather than later.

The Canadian Securities Administrators (CSA) finalized changes to their trading rules to accommodate the planned shift to T+1 (trade day plus one) settlement for the Canadian equity markets and long-term debt trades next spring.

Following a public comment period on the proposed changes, the CSA noted that it has pushed back the institutional trade-matching deadline — which was originally proposed for 9 p.m. (Eastern time) on the day that a trade takes place — to 3:59 a.m. (ET) on the day following the trade.

The revised deadline reflects feedback received from the industry in both comment letters and other consultations, the CSA noted.

“We agree with the comments that it would be sensible to provide the longest possible timeframe to accommodate settlement processing cycles,” the CSA said in its notice.

The rule changes will take effect on May 27, 2024, when the move to T+1 takes place in Canada.

“This timing was chosen to align with the move to T+1 and associated regulatory rule changes in the U.S.,” the CSA said — although Canadian markets will make the move a day earlier than the U.S., where May 27 is a statutory holiday.

Separately, the Investment Company Institute (ICI), a U.S. fund industry trade group, called on European regulators to pursue their own move to T+1 trade settlement.

In a letter to the European Securities Market Authority (ESMA), which has consulted on shortening the settlement cycle in Europe, the head of ICI Global called on Europe to commit to moving to T+1 in early 2024, with a view to actually making the move within 24 to 30 months.

“Acting expeditiously will help minimize the duration of misalignment with the North American markets,” wrote Michael Pedroni of ICI Global, adding that ESMA should coordinate with other jurisdictions, including the U.K. and Switzerland, “to facilitate a globally aligned move to T+1.”

“We urge the [European Union] not to pursue moving to T+0 settlement at this time, as this represents a substantially more complex undertaking than moving to T+1, would misalign settlement cycles worldwide, and would reduce the efficiency of EU capital markets,” Pedroni added.

Instead, adopting a plan to shift to T+1 alongside the U.S. and Canadian markets “will incentivize market participants to modernize their processes through greater use of technology, automation, and standardization. The end result will be increased efficiency and cost-effectiveness and will better serve investors,” he said.