FAQs – Shift to T+1 settlement cycle – U.S.A.

26.04.2024

In this section, you will find answers to the following questions. The questions highlighted in grey have been added or updated. 

Please see the separate FAQs for further information on the shift to the T+1 settlement cycle in Canada and Mexico.

  1. What is T+1 and why is it a significant industry initiative?
  2. What triggered the U.S. move to T+1? 
  3. Which SEC rules are impacted by T+1?
  4. What will be the transactions subject to T+1?
  5. What will be the instruments in scope?
  6. What are the implications of the SEC Rule 15c6-1(a)?
  7. What are the implications of the SEC rule 15c6-2?
  8. What is a trade affirmation on the U.S. market? 
  9. What will be the new allocation and affirmation cut-offs on the U.S. market?
  10. What will be CBL’s confirmation/affirmation proposition to its clients?
  11. What is the alternative to CBL’s affirmation proposition?
  12. What happens if a transaction is not affirmed?
  13. What will CBL clients receive as affirmation reports?
  14. When will the move to T+1 take place?
  15. What will be the transition timeline?
  16. What will be the last T+2 trade date?
  17. What will be the first T+1 trade date?
  18. Will there be a change to the CBL provisioning period?
  19. Will there be a change to the CBL settlement deadline?
  20. Are there any changes planned to Swift MT541/MT543 formatting?
  21. Will there be any penalties for non-compliance to T+1? 
  22. Will there be any impact on cash funding and foreign exchange? 
  23. Will there be any impact to asset servicing?
  24. Will there be any impact on the lending and borrowing services?
  25. Is there any impact on the collateral side?
  26. Are there any other markets expected to move to T+1?

1. What is T+1 and why is it a significant industry initiative?

The U.S. financial market is shifting from a T+2 to T+1 settlement cycle to improve market efficiency.

T+1 means that trade-related settlement in Depository Trust & Clearing Corporation (DTCC) must be done within one day of a transaction’s completion (T = trade date). 

This will have a material impact on the entire U.S. pre- and post-trading market infrastructure including operating models, processing activities, external dependencies and technical developments. 

For additional information, please refer to the DTCC’s website. 

2. What triggered the U.S. move to T+1? 

The decision to move to T+1 settlement is the U.S. regulator’s response to market volatility in order to provide greater market stability and market liquidity. On 15 February 2023, the U.S. Securities and Exchange Commission (SEC) adopted final requirements for the introduction of T+1 settlement. 

3. Which SEC rules are impacted by T+1?

The following three SEC rules are impacted: 

  • Amended Exchange Act Rule 15c6-1(a): T+2 shall move to T+1 settlement cycle.
  • Amended Advisors Act Rule 204-2: Registered Investment Advisors (RIAs) that are parties to contracts under Rule 15c6-2 shall be obliged to keep on record confirmations received, as well as allocations and affirmations sent – each with a date and time stamp.
  • New Exchange Act Rule 15c6-2: Broker-dealers and counterparties shall be required to complete allocations, confirmations, affirmations no later than trade date. This shall also apply to RIAs.

For further information, please refer to the SEC's website.

4. What will be the transactions subject to T+1?

The following transactions will be subject to T+1 settlement: 

  • Stock exchange and over-the-counter (OTC) trades with U.S. broker-dealers’ counterparties settling in DTCC; and 
  • DTC against payment domestic cross-border transactions (MT541/MT543 Swift messages).

The following transactions are out of scope, that is, they will not be subject to T+1 settlement: 

  • DTC free of payment domestic cross-border transactions (MT540/MT542 Swift messages); 
  • Clearstream Banking S.A. (CBL) internal and Bridge transactions;  
  • Federal Reserve (FED) transactions; and 
  • All trades with physical securities. 

5. What will be the instruments in scope?

These are the instrument classes that qualify for T+1 settlement in accordance the DTCC’s product scope list:

  • Equities, 
  • Corporate bonds, 
  • Municipal bonds, 
  • Asset-backed securities, 
  • Warrants, 
  • Rights,
  • Money market instruments, 
  • Unit investment trusts, 
  • Financial instruments comprised of these security types, for example, American Depository Receipts (ADRs), exchange traded funds (ETFs) and mutual funds.

Note: ETFs issued under a Common Depository structure and FED instruments will not be subject to T+1.

6. What are the implications of the SEC Rule 15c6-1(a)?  

On 26 May 1995, the U.S. Securities and Exchange Commission (SEC) issued an exemptive order, exempting certain transactions in foreign securities from Rule 15c6-1 under the Securities Exchange Act of 1934. In general, the potential scenarios for dual-listed securities listed below are subject to Rule 15c6-1 and could be impacted by the implementation of T+1 settlement. 

Rule 15c6-1 applies in the following scenarios: 

  • Security is DTC-eligible or eligible to be held at a U.S. Transfer Agent, and there is more than 10% trading volume in the U.S., and the security is executed in the U.S.; or
  • Security is DTC-eligible or eligible to be held at a U.S. Transfer Agent, and there is more than 10% trading volume in the U.S., and the security is settled in the U.S..

Rule 15c6-1 does not apply in the following scenarios:

  • Security is not DTC-eligible or eligible to be held at a U.S. Transfer Agent;
  • Security has less than 10% trading volume in the U.S.;
  • Security is neither executed nor settled in the U.S.; 
  • Security is DTC-eligible or eligible to be held at a U.S. Transfer Agent, and Security has less than 10% trading volume in the U.S.; or
  • Security is DTC-eligible or eligible to be held at a U.S. Transfer Agent, and Security is not executed nor settled in the U.S.

Important note: These lists are not meant to be exhaustive; any additional scenarios may require clients to consult with their counsel. 

Source of information: https://www.govinfo.gov/content/pkg/FR-1995-05-26/html/95-12986.htm

7. What are the implications of the SEC Rule 15c6-2?  

Removing one day from the settlement cycle reduces the life cycle of the trade and creates timing challenges for allocations, confirmations and affirmations before settlement can take place. T+1 introduces a requirement for same-day trade allocations, confirmations and affirmations.

The following three steps must be taken: 

  1. Trade allocation: The counterparty to the trade provides allocation details to the broker-dealer.
  2. Trade confirmation: The broker-dealer submits a trade confirmation to DTCC to allow for matching between both parties. Please note that the confirmation is a critical step to allow the trade to be affirmed. Without this confirmation, the affirmation cannot take place.
  3. Trade affirmation: The affirmation of the trade confirmation is performed either by the counterparty to the trade or the delegated custodian. Affirmation under T+2 life cycle was not a regulatory requirement but will be one under the T+1 regime.

Note: Affirmation at DTCC is a process separate from settlement at DTC.

8. What is a trade affirmation on the U.S. market?

A trade affirmation on the U.S. market serves as an acknowledgement to the parties to the trade confirming that the reporting of the trade is in conformity to the trade details and the settlement instructions.

Confirmed affirmations have a lower rate of DK which decreases cost and risk in the settlement process.

9. What will be the new allocation and affirmation cut-offs on the U.S. market?

The following allocation and affirmation cut-off deadlines will apply under the T+1 regime: 

The Depository Trust Company's (DTC's) “allocation” cut-off deadline will be 19:00 EST/01:00 CET on trade date (T).

The DTC “affirmation” cut-off deadline will be 21:00 EST on trade date (SD-1)/03:00 CET on T+1 (SD). 

The Clearstream Banking S.A.'s (CBL's) “affirmation” cut-off deadline, as defined with Citi US, will be 20:45 EST on trade date (SD-1)/2:45 CET on T+1 (SD).

Note: DTC affirmation deadline in the current T+2 settlement cycle model is 11:30 ET on T+1/17:30 CET on T+1.

10. What will be CBL’s confirmation/affirmation proposition to its clients?

Clearstream Banking S.A. (CBL) has a TradeSuite ID® Number (TSID 64005) linked to its omnibus account held with its custodian: DTC participant 908/Citibank, Agent ID 57569.

The TradeSuite ID Number is an identifier used in the TradeSuite ID system to distinguish between parties on a trade confirm. 

The ALERT platform is an industry database for maintenance and communication of account and standing settlement instructions (SSIs).

Please note that Citi US has a real-time connectivity with DTCC to affirm confirmations defined by the U.S. broker.

High level process view

Allocation process

Allocation of the trade is performed by CBL’s clients and its U.S. broker/counterparty.

Confirmation process

  1. The U.S. broker will confirm to enable the affirmation process.
  2. Upon receipt, CBL’s client Swift instruction will be matched to the U.S. broker’s confirmation and affirmed.

If no broker confirmation is available, CBL’s client Swift instruction will be leveraged for settlement and sent to DTC.

Please note that the initiation step of providing the confirmation remains with the U.S. broker, not with CBL’s clients. Trades can be affirmed only if a broker confirmation is present.

Detailed level process view

Allocation process

Both counterparties define and allocate trade details.

Such trade details will be used for matching in DTCC’s Central Trade Matching (CTM) or equivalent system.

Confirmation process

CBL’s clients will provide CBL TSID (64005) or, alternatively, their own TSID as part of the SSIs to the U.S. broker.

CBL's client, the investment manager and the U.S. broker are responsible to update ALERT with the following values:

  1. Fields under “Depository/Clearing/Settlement Agency Data”:
    • Inst/Broker ID: 64005 (CBL TSID) or CBL’s client own TSID; 
    • Agent ID: 57569 (Citi Agent ID);
    • DTC #: 908 (Citi DTC participant number).
  2. Fields under “Settlement Party Data – Local Clearing Agent Data”:
    •  A/C # at Local Agent: 089154 (CBL omnibus account at Citi);
    • Local A/C ref: CSCxxxxx (xxxxx being CBL 5-digit account number). Please ensure that the content of “Local A/C ref” is indicated within the dedicated field and is not attached to CBL omnibus account in the field “A/C# at Local Agent” to avoid rejection of the confirmations at Citi’s level;  
    • Local Agent Bic: CITIUS33XXX.

The U.S. broker will use CBL TSID or CBL’s client own TSID to issue the confirmation in TradeSuite to allow matching in the CTM or equivalent system.

The confirmation is a critical step to allow the trade to be affirmed; without this confirmation, the affirmation cannot take place.

To ensure readiness, Clearstream Banking recommends you to validate or update the above details with your counterparty prior to T+1 migration.

Affirmation process

As a CBL client, you are requested to: 

  • Send your Swift MT541/543 settlement messages by CBL’s “affirmation” cut-off deadline of 20:45 EST on trade date (SD-1)/2:45 CET on T+1 (SD) (15 minutes prior to market affirmation cut-off deadline); 
  • Ensure that your CBL account is duly funded with cash or provisioned with the securities by this affirmation cut-off.

Based on the CBL client Swift instructions received by CBL and broker confirmations present, Citi US will affirm the confirmations set up against CBL or client TSID by the new affirmation deadline of 20:45 EST on trade date (SD-1)/2:45 CET on T+1 (SD).

Settlement will be processed separately at DTC; the affirmation does neither trigger nor guarantee settlement. However, affirmation increases the probability of settlement during the night-time cycle of DTCC and reduces the risks of failed transactions. With the affirmation process, both parties are effectively in agreement with the trade details. 

If, for any reason, the affirmation cannot take place, settlement can still be processed in accordance with the market settlement validation rules (see question 12).

The following table shows the high-level process flow of the affirmation for clients using CBL’s TSID or their own TSID:

Data

TSID in use

Data under “Depository/Clearing/Settlement agency":

  • Inst/Broker ID = CBL TSID 64005 or CBL client's own TSID
  • Agent ID = Citi's Agent ID: 57569
  • DTC # = Citibank's DTC participant number: 908

Data under "Settlement Party/Local clearing agent":

  • A/C # at Local Agent = 089154
  • Local A/C Ref = CSCxxxxx (xxxxx = account number of CBL client)
  • Local Agent BIC = CITIUS33XXX

Responsible party 

Process step

Investment manager and U.S. broker

Define and allocate agreed trade for matching via Central Trade Matching (CTM) system or equivalent.

CBL client

  1. On trade date (T): Communicate CBL TSID/Citi US & SSI to U.S. broker;
  2. Update ALERT with the correct CBL standard settlement instruction (SSI).

U.S. broker

Initiate “Confirm” by the affirmation deadline, 21:00 EST on trade date (SD-1)/3:00 CET on T+1 (SD).

CBL client

Send appropriate MT541/543 by Citi's deadline, 20:45 EST on trade date (SD-1)/2:45 CET on T+1 (SD).

Citi US

Upon receipt of valid MT541/543 from CBL's client: Affirm the Confirmation.

The affirmation is performed based on the following matching criteria:

  • Message Type
  • Account Number
  • Settlement Date
  • Trade Date
  • Broker Code
  • Broker Payment (Settlement Amount)
  • Units (Quantity)
  • Security Identifier (ISIN/CUSIP)

Citi US

Upon positive matching:

  1. Send MT548 Match to CBL;
  2. Convey CBL's MT541/543 for settlement to DTC.

DTC/Citi US

Upon settlement completion:

Send MT54X confirmation to CBL.

CBL

Upon receipt of MT54X confirmation from DTC/Citi US:

Settle internally to reflect finality of the transaction.

11. What is the alternative to CBL’s affirmation proposition?

Clients of Clearstream Banking S.A. (CBL) favouring the Self- or Auto-Affirmation processes offered by DTCC must engage with DTCC and obtain their own TradeSuite ID® Number and accesses to CTM/Mi2 or alternative platforms in order to manage the affirmation directly by themselves.

The following table shows the high-level process flow of the Self-/Auto-Affirmation for clients using their own TSID:

Data

TSID in use

Data under “Depository/Clearing/Settlement agency":

  • Inst/Broker ID = CBL client's own TSID
  • Agent ID = Citi's Agent ID: 57569
  • DTC # = Citibank's DTC participant number: 908 

Data under "Settlement Party/Local clearing agent": 

  • A/C # at Local Agent = 089154 
  • Local A/C Ref = CSCxxxxx (xxxxx = account number of CBL client)
  • Local Agent BIC = CITIUS33XXX  

Responsible party 

Process step

Investment manager and U.S. broker

Define and allocate agreed trade for matching via Central Trade Matching (CTM) system or equivalent.

CBL client

  1. On trade date (T): Communicate own TSID/Citi US & SSI to U.S. broker;
  2. Update ALERT with the correct standard settlement instruction (SSI).

U.S. broker

  1. Initiate “Confirm” by the affirmation deadline, 21:00 EST on trade date (SD-1)/3:00 CET on T+1 (SD).
  2. Send “Confirm” to CTM.

This will trigger the following:

Matching occurs in CTM.

CBL client

Enrich the trade with details in ALERT.

This will trigger the following:

  • Details are sent for self-affirmation or via CTM/Mi2 for auto-affirmation;
  • Matching with the broker’s confirmation occurs in CTM;
  • Affirmation is completed.

Citi US

Receive an affirmed confirmation from DTCC.

CBL client

Send appropriate MT541/543 by the settlement date (S).

Citi US

  1. Match CBL client’s MT541/543 received;
  2. Authorise it for settlement.

Note: 

  • The affirmed "Confirm" is not authorised for settlement until the CBL client’s trade passes through Citi US’s core system and passes all validations.
  • If affirmation occurs, and no CBL client MT541/543 message is received by Citi US, an MT578 (Allegement) will be provided to CBL’s client by the end of day on settlement date.
  • If a client instruction is received but no self-affirmation or auto-affirmation has been performed by the affirmation deadline, Citi US will convey the client instruction for settlement.

DTC/Citi US

Upon settlement completion: Send MT54X confirmation to CBL.

CBL

Upon receipt of MT54X confirmation from DTC/Citi US:

  1. Settle internally to reflect finality of the transaction;
  2. Provide CBL client with appropriate feedback.

CBL will not be involved in the affirmation leg. However, CBL will convey the Swift instruction for settlement upon receipt from its clients.

In this scenario, CBL U.S. standard settlement deadlines remain unchanged as well as the provisioning and cash deadlines. Please refer to the Settlement times – U.S.A. page of the Market Link Guide – U.S.A. or the Cash Timings Matrix.

12. What happens if a transaction is not affirmed?

If a transaction is not affirmed via TradeSuite ID by the 21:00 EST cut-off time, the trade can still settle.

13. What will CBL clients receive as affirmation reports?

Clearstream Banking S.A. (CBL) will transmit Swift MT548 MTCH/NMAT and MTCH/MTCH near real time once the CBL client settlement instruction has been affirmed to the counterparty’s confirmation:

  • The Swift MT548 MTCH/NMAT status represents CBL client instructions which are not affirmed. 
  • The Swift MT548 MTCH/MTCH status represents CBL client instructions which are affirmed.

The matching process will take place between TD and  CBL’s/Citi’s affirmation cut-off.

CBL will transmit Swift MT578 messages to clients near real time once the CBL custodian validates that a CBL client has not yet sent the corresponding instruction to affirm the counterparty’s confirmation. 

The Swift MT578 messages shall remind CBL clients to send their instructions. 

14. When will the move to T+1 take place?

The SEC confirmed the implementation date: Tuesday, 28 May 2024. 

On Monday, 27 May 2024 (Memorial Day in the U.S.A.), the U.S. market is closed for business. 

15. What will be the transition timeline?

The transition will be performed during the conversion weekend of 25 to 26 May 2024.

16. What will be the last T+2 trade date? 

Last trade date for a T+2 settlement will be Friday, 24 May 2024.

All trades concluded on this business day will have the settlement date Wednesday, 29 May 2024.

17. What will be the first T+1 trade date? 

First trade date for T+1 will be Tuesday, 28 May 2024.

All trades concluded on this business day will have the settlement date Wednesday, 29 May 2024. 

Note: Wednesday, 29 May 2024, will be a double settlement date for instructions with trade date Friday, 24 May 2024, or Tuesday, 28 May 2024.

18. Will there be a change to the CBL provisioning period? 

Clearstream Banking S.A. (CBL) does not anticipate any change to its current provisioning period. Please refer to Settlement times – U.S.A. for details. 

If CBL clients opt for CBL’s affirmation proposition described under question 10, they shall provision their account with cash or securities during the following provisioning period from 21:30 CET SD-1 to 2:45 CET SD. This offers a period of 5 hours 15 minutes for CBL clients to send the necessary cash/settlement instructions to CBL.

19. Will there be a change to the CBL settlement deadline?

Clearstream Banking S.A. (CBL) does not anticipate any change to its current settlement deadline. Please refer to Settlement times – U.S.A. for details.

If CBL clients opt for the CBL’s affirmation proposition described under question 10, they shall send their Swift settlement instructions by CBL affirmation cut-off deadline of 20:45 EST on trade date (SD-1)/2:45 CET T+1 (SD).

20. Are there any changes planned to Swift MT541/MT543 formatting?

Clearstream Banking S.A. (CBL) does not anticipate any changes to the MT541/MT543 Swift message formats. 

The main concern with regard to T+1 settlement is the exact point in time on which a settlement instruction shall be sent to be eligible for affirmation (also see question 10).

As DTC’s new cut-off for affirmation is 21:00 EST on trade date, instructions that are duly provisioned (that is, with cash or securities) and correctly formatted have to be sent by this new deadline to be affirmed. In addition, the counterparty will have to present its confirmation to DTC to enable the affirmation process.

As per the answer to question 9, please note that CBL's "affirmation" cut-off deadline, as defined with Citi US, will be 20.45 EST on trade date (SD-1)/2:45 CET on trade date +1 (SD).  

Swift MT578 allegement will be transmitted upon receipt of the counterparty’s delivery instruction in DTC.

21. Will there be any penalties for non-compliance to T+1? 

The U.S. market is not subject to the EU Central Securities Depositories Regulation (CSDR), there are no penalties applying from DTC or Clearstream Banking S.A.'s (CBL's) U.S. agent. 

However, if a failure in the U.S. market leads to a fail in Clearstream Banking AG/TARGET2-Securities (CBF/T2S) or CBL settlement, penalties are calculated for the fail in CBF/CBL, as it is already the case at present if the respective ISIN falls within the scope of the EU Settlement Regime Regulation (SDR).

22. Will there be any impact on cash funding and foreign exchange? 

Clearstream Banking S.A. (CBL) cash funding as well as foreign exchange deadlines will remain unchanged under the T+1 regime.

However, CBL clients are recommended to review their cash funding requirements to determine where changes to their operating model are required. 

If CBL clients opt for CBL’s affirmation proposition described under question 10, they shall fund the CBL cash account by CBL affirmation cut-off deadline of 20:45 EST on trade date (SD-1)/2:45 CET T+1 (SD).

23. Will there be any impact to asset servicing? 

As per intended Clearstream Banking S.A. (CBL) implementation, the main impact for clients will be on the distribution of equities or equities-like instruments issued by DTCC and will be as follows: 

  • In the current T+2 settlement cycle, the “regular-way ex-date” occurs prior to the record date of the event, falling on the trading day before the record date, whereas “irregular-way ex-date” occurs when ex-date is ruled after record date.
  • In the T+1 settlement environment, the ex-date and the record date will be aligned (XD=RD), commonly referred to as “regular-way ex-date.”
    CBL will communicate the key event dates (for example, Ex Date, Record Date and Payment Date) as these are announced by the local market. The dates are expected to be XD=RD with the Payment Date usually being the next business day following the Record Date.
    This will be applied for the securities listed/traded in the U.S. or outside the U.S., to multi-listed/multi-traded securities in Germany and, according to the knowledge of CBL, other markets are still subject to final validation and confirmation.
  • CBL anticipates that all impacted corporate actions with the Record Date falling on or after the migration weekend (25–26 May 2024) will announce the key dates in line with the T+1 settlement environment (XD=RD) starting immediately. The events announced previously and falling under the same condition are expected to be cancelled and re-announced with the new key dates by the market prior to migration.
  • CBL’s process of market claims will remain unchanged and the claims will continue to be generated gross followed by a tax adjustment. However, with regard to trading venues where T+2 settlement is still applied after the U.S. T+1 migration, an increase of market claims is expected. This is due to the fact that more cum trades will be pending on or after the RD due to a misalignment in the settlement cycles.
  • No transformations are supported by the market. Therefore, the pending instructions impacted by reorganisation events will continue to be subject to cancellation only.
  • Impacted events: Cash distribution events such as cash dividends, capital gains and others, as well as stock distribution events such as stock splits, stock dividends, rights distributions and spin-offs.
  • For Proxy service and voluntary corporate action events, Clearstream Banking does not anticipate any changes within its services.
  • The shorter settlement cycle is not expected to impact any tax procedures. Double taxation agreements will not be affected either. 

24. Will there be any impact on the lending and borrowing services? 

The principal loan opening is foreseen not to be impacted since trades are initiated on internal accounts based on settled positions. 

The “recall” and the current implementation of timelines for U.S. securities will be impacted due to the shorter settlement period: Securities will have to be recalled on a shorter timeframe, increasing the risk of Clearstream Banking S.A. (CBL) internal settlement fails. This could possibly lead to less inventory being made available for lending, potentially damaging overall market liquidity.

CBL is investigating the option of bringing forward the recall notification timelines which could impact the European lenders operationally and the borrowers involved in chain transactions for the specific securities. This document will be updated with any changes and clients will be informed accordingly in due time.

25. Is there any impact on the collateral side? 

No. Clearstream Banking S.A. (CBL) does not generate any domestic or cross-border instructions with the U.S. market, its collateral process is organised on a same-day basis and on internal movements of holdings. 

26. Are there any other markets expected to move to T+1? 

Yes, the situation is as follows: 

  • For Argentina, Bolsas y Mercados Argentinos (BYMA) informed that the settlement cycle reduction announced on 6 March 2024 from T+2 to T+1 is subject to regulatory approval by the local SEC (Comisión Nacional de Valores). Therefore, the migration date is not final until all applicable regulations are reviewed and approved.
  • Both the UK and EU have developed task forces to discuss T+1. The EU is currently considering other regulatory items such as CSDR prior to T+1 implementation with ongoing conversations. 

For additional information, please visit https://www.dtcc.com/ust1.