The SEC has adopted rule amendments and new rules to move the standard settlement cycle to T+1, which takes effect on May 28, 2024, in the US and May 27, 2024, in Canada. This shift represents a significant adjustment in the securities transaction process. Securities transactions will now settle one business day after the trade date rather than the previous T+2 framework.
Implications
- Shortening the settlement period decreases the time over which prices can fluctuate to affect transactions, reducing the market risk associated with price movements between the trade and settlement dates.
- Faster settlements can lead to a more fluid and efficient market, as capital and securities get freed up more quickly for further reinvestment or trading.
- Reducing the settlement timeframe minimizes the risk of one party failing to fulfill their part of the transaction within the agreed timeframe.
- This adjustment aligns with global trends toward faster settlements, helping both markets stay competitive and compliant with international standards.
As such, financial institutions and traders must update their systems and operations to accommodate the faster settlement cycle. With quicker turnovers, managing liquidity may become more challenging, requiring more precise cash and asset management strategies. Therefore, we recommend investors review policies and systems, ensuring that trading, risk management, and operational systems are updated to handle the new settlement cycle.