Coming September 5: Shorter Trade Settlement

By Tom Price

September 5, 2017 marks a major change to standard trading practices in U.S. securities markets. Here’s what you need to know about the industry’s effort to shorten the settlement cycle from three days (T+3) to two (T+2):

What is happening on September 5?
September 5 is the first day securities, primarily equities, corporates and munis, will be traded on a two-day settlement cycle. That means trades executed on September 5 will settle on September 7. Settlement marks the completion of a trade and official transfer of ownership.

Friday, September 1, will be the last day for trading with the old three-day settlement cycle. So, trades executed on September 1 will also clear on September 7.

Canada, Mexico, Peru and Argentina are also moving to a T+2 settlement cycle on September 5.

How will this impact buyers and sellers of securities?
Beginning September 5, sellers should expect payment one day faster following a sale of an impacted security, as compared to the previous three-day settlement cycle. Likewise, buyers will be required to provide funds one day sooner following the purchase of an impacted security.

What are the benefits of T+2?
This is a big move to benefit investors. Risk is a function of time – so shortening the time between trade date and settlement date will reduce the risk of a trade default. It will also streamline operations and enhance capital efficiency for firms – freeing up capital that can be put to better use. In fact, DTCC estimates it will reduce daily average capital requirements for its equity clearing fund by 25 percent, or $1.36 billion.

Globally, a T+2 settlement cycle will align the U.S. with other major markets around the world.

How has the industry prepared for the transition?
SIFMA, ICI and DTCC have been working together over the past three years through a T+2 Industry Steering Committee to advance the industry’s T+2 effort. After establishing an industry consensus for T+2, we worked with over 600 market participants to develop a playbook that individual companies used as a guide to achieve T+2 on the target timeframe. Shortening the settlement cycle impacts many different processes, markets, infrastructure and products.

The T+2 Industry Steering Committee will hold a command center over the transition period, from September 1-September 8, to monitor and help facilitate the move.

Any regulatory considerations?
Regulatory action provided needed certainty to facilitate the industry’s move to T+2. Approximately 49 rules were changed or addressed through guidance by various regulators to support the move, including action by the Securities and Exchange Commission. T+2 is truly a win for investors and the industry.

More information:

Tom Price is managing director and head of technology, operations and BCP at SIFMA. He is also co-chair of the T+2 Industry Steering Committee (T+2 ISC). The T+2 ISC is organized by DTCC and co-chaired by SIFMA and ICI to guide the move to T+2.