THOUGHT LEADERSHIP
T+1: Total Recall… While you are no doubt thinking of Arnie rather than settlement cycles, there is a link to the 1990s classic and the impending change to the US and Canadian markets in May 2024
An article by Scott Brown, EMEA Head of Origination and Thomas Veneziano, Product Director, Head of NAM Products at Pirum. With all impending challenges driven by regulatory change, and like Douglas Quaid in the movie, there will be companies selling you ‘fake memories of ideal vacations.’ Your job, as always, is to decide if you are Douglas Quaid or Harry. Let us examine the changes and look at how securities finance participants can navigate these challenges.
efficient and resilient market while hopefully addressing episodes of market volatility which include the “meme stock” events of 2021 and the COVID-19 pandemic. Furthermore, compressing settlements by one day will improve investor protection and reduce credit, market and liquidity risks arising from unsettled securities trades. This shortened period will enable investors to access the proceeds from securities transactions sooner than they are able in the current T+2 environment and the compression should reduce the number of failed transactions overall, the period of exposure to those trades that do not settle, and potential price movements on the underlying securities. However if settlement efficiency is not achieved and failures increase instead, unintended consequences may arise, and it would not be inconceivable for the regulators to implement a recall fail regime and/or penalties akin to TPMG claims or CSDR penalties. In addition, the shorter settlement cycle is aimed at improving the efficiency of capital for market participants. Like in both purchase
What is changing? On February 15, 2023, the Securities and Exchange Commission (the “Commission”) adopted the SEC Exchange Act Rule 15c61 amendment to accelerate the standard settlement cycle for securities trades from two business days after the trade date to one business day after the trade date (or from “T+2” to “T+1” in common parlance). The final rules will become effective 60 days following the date of publication of the adopting release in the Federal Register, but the compliance date for the rule change will be May 28, 2024. The amendment is one way in which the Commission is seeking to create a more
39
Securities Finance Americas Guide 2023