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Treasury & Capital Markets
Shift to T+1 mission accomplished, so far
Smooth US trading settlement cycle transition shows substantial progress in industry
Tom King 6 Jun 2024

Like the anxiety around the millennium bug, the concerns over the implementation of the new T+1 settlement cycle causing chaos, failed to materialize.

Essentially, the changeover on May 28th passed off without much concern. However, as the freshly shortened settlement cycle for most broker-dealer transactions is only just one week old, it is still being closely scrutinized.

The settlement cycle to T+1 now sees US market participants settle a trade one business day after it is executed, from the previous regime of two business days or T+2.

This weekend will be the first following a full week of trading, so those running the technology behind the conversion will again be closely monitoring the settlement of Asian originated actions made late on Friday June 7.   

The smoothness of the changeover was made possible as the players responsible for the conversion started preparing for it well in advance.

Speaking to The Asset, Gerard Walsh, global head of Capital Markets Client Solutions at Northern Trust, shared some insights and background on how the industry is adapting in the wake of the T+1 launch.

“It’s a testament to the preparation that went on globally,” Walsh notes. “It’s similar to Y2K, where the preparation worked. [And] teams across the world deserve credit for the smooth transition.

“We’ve been running pre-implementation sessions across regions and will continue until we have several weeks of trading data to analyze the long-term implications. It has only been a week, but early data points show positive trends in trade volumes, settlement rates and information rates, all aligning with SEC expectations.”

On the first Saturday of the T+1 implementation Walsh shares that his firm had been monitoring for any issues, particularly in late Friday trades in Asia. He adds that his team are monitoring settlement failure rates as even a 2.5% to 3% failure rate can be a very large number of trades.

“We’re also closely watching pre-funding of trades and cash management, particularly for Asia-Pacific managers. This can indicate how well they are adapting to the new system.”

On the surface, the changeover was seen as straightforward, he notes, but the technology underpinning the whole process was hard to grasp, with every portfolio and trade workflow being unique and requiring careful management.

“Despite looking monolithic from the outside, the finance industry is highly complex internally,” he shares. “Seven years ago, the US was on T+3, so the transition to T+1 shows substantial progress in the industry. It’s a significant advancement.”

Despite the success so far, Walsh doesn’t see other T+2 markets rushing to T+1 soon. “Markets like the UK are looking at 2027 for T+1. Australia and Hong Kong are likely to follow suit, but they have extensive regulatory changes to manage first.”

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