The shortening of the U.S. settlement cycle to T+1 is set to take effect on May 28, 2024. Firms should be well on their way to planning and implementing the necessary changes to comply. We recently conducted an informal poll to ask if participants were prepared for the shift to T+1, and 10% reported they were not prepared. Respondents also reported that their biggest concerns were “communication and coordination with counterparties” (40%) and “operational readiness and process changes” (35%).
In preparing for T+1 settlement, what stage best describes your investment firm’s current progress?
We have developed a detailed plan and started implementing changes
We are in the early planning and awareness stage
We have initiated internal discussions and assessments
We have not yet started preparations
We have already implemented T+1
What is the primary concern regarding your company's shift to T+1?
Communication and coordination with counterparties
Operational readiness and process changes
Technology and infrastructure upgrades
Risk management in a shorter settlement cycle
Compliance and regulatory requirements
The change to T+1 impacts all parties, irrespective of domicile, transacting in equities, fixed income, ETFs/Exchange Traded Note (ETNs), ADRs/Master Limited Partnerships (MLPs), securities lending, repos, and free of payment receipts and deliveries, settling in DTC. The parties impacted include buy-side firms and investment managers, executing brokers, and clearing parties. Below are some areas that market participants may want to review for T+1 readiness:
Buy-Side and Investment Manager
Ensure delivery of finalized trade allocations to all parties in real time.
Automate matching to improve affirmation timeliness.
Validate the accuracy of clearing party settlement instructions published to brokers.
Review data retention policy related to allocations and affirmations.
Realign local staffing coverage to handle exceptions before the affirmation deadline.
Adopt an electronic matching platform.
Automate confirm generation to ensure optimal affirmation timing.
Validate published settlement instructions.
Assess new account opening timelines to avoid settlement-related bottlenecks.
Ensure appropriate coverage is in place to address exceptions to meet the affirmation deadline.
Deploy enhanced practices to accept real-time settlement instructions from investment managers and buy-side firms.
Prime Brokers should review the timing of the trade affirmation process to adhere to new affirmation deadlines.
Collaborate with buy-side firms and investment managers to set up appropriate affirmation practices.
Review trade rebook practices to prevent settlement bottlenecks.