Post Trade - US T+1: settlement cycle shortened to T+1 in the US market

How does it work?

The SEC has adopted both rule amendments and new rules to move the standard settlement cycle to T+1 in the US market:

• Shorten the standard settlement cycle for most securities transactions from two business days after the trade date (T+2) to one (T+1), unless the parties expressly agree on a different settlement date at the time of the transaction.

• Relevant securities: all securities eligible for settlement in the Depository Trust and Clearing Corporation (DTCC), as the products subject to the shortened settlement cycle include equities, corporate and municipal bonds, mutual funds and financial instruments composed of these types of securities.

• Improve the processing of institutional transactions with new requirements for broker-dealers and registered investment advisors concerning same-day affirmations.

• Facilitate straight-through processing with new requirements for clearing agencies that are central matching service providers.

Entry into force

The accelerated settlement cycle will start on 27 May 2024 for the Canadian market and on 28 May 2024 for the US market.

What is the impact of moving the settlement cycle to T+1?

The SEC's decision to adopt the T+1 cycle has been largely supported by US market participants who anticipate benefits from this change. In particular, a reduction in counterparty risk across the entire ecosystem. T+1 may act as a catalyst for increasing levels of automation and standardisation in post-trade processes.

The move to a T+1 settlement cycle in the US represents a crucial step for the US financial services industry and creates significant challenges for all market participants, who need to update their processes to ensure compliance with the new settlement model.