U.S.A.: Moving towards a T+1 settlement cycle in 2024
Clearstream Banking1 informs clients of the processing schedule for transition to the T+1 settlement cycle and the impact on asset servicing in the U.S. market before, on and after the implementation date
28 May 2024
Background
The financial services industry moved from a T+5 to T+3 settlement cycle in 1995 to reduce systemic risk and improve the operation of the U.S. clearance and settlement process. Subsequently, on 5 September 2017, the securities industry successfully transitioned from T+3 to T+2.
In early 2022, an Industry Steering Committee (ISC) and associated Industry Working Group (IWG) was formed to analyse the impacts of moving the U.S. securities markets to T+1 settlement as well as the associated risks and benefits of doing so.
On 15 February 2023, the U.S. Securities and Exchange Commission (SEC) adopted rule changes and confirmed the implementation date of 28 May 2024 for the standard settlement cycle of most broker-dealer transactions in securities to be shortened from T+2 to T+1.
Benefits
According to the ISC, the primary anticipated benefits for the investors will be as follows:
- Reduced credit and counterparty risk particularly during periods of high volume and volatility;
- Operational process improvements via infrastructure modernisation and standardisation of industry processes;
- Increased market liquidity and lower collateral and margin requirements.
Processing schedule
The last date on which securities will be traded on the current two-day (T+2) settlement standard will be Friday, 24 May 2024.
Capital market participants shall adjust their systems to support a shortened standard securities settlement cycle on the weekend of 25 and 26 May 2024.
The first day of T+1 trading will be the next business day in the U.S.: Tuesday, 28 May 2024.
Friday, | Saturday, | Sunday, | Monday, | Tuesday, | Wednesday, | Thursday, | |
U.S. settlement cycle | Last T+2 Trade Date | Conversion Weekend | Conversion Weekend | Conversion Weekend (Market closed) | First T+1 Trade Date | Double Settlement Date | Trade and settle T+1 |
Impact on clients
Please note that the direct DTC link via Clearstream Banking AG (CBF) will not be subject to T+1 from a settlement point of view because T+1 applies to against payment instructions MT541/543 and the CBF direct link to DTC is a free of payment link.
However, asset servicing of the securities held by CBF clients via the CBF direct link to DTC will be impacted. The main impact for CBF clients will cover 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 the “irregular-way ex-date” occurs when the ex-date is ruled after the 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.”
CBF 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 CBF, other markets are still subject to final validation and confirmation. - CBF 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.
Previously announced events falling under the same condition are expected to be cancelled and re-announced with the new key dates by the market prior to migration. - CBF’s process of market claims will remain unchanged. 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.
Further information
Further information can be found in the FAQs – Shift to T+1 settlement cycle section. Clients may also contact Clearstream Banking Client Services or their Relationship Officer.
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1. This Announcement is published by Clearstream Banking AG (CBF), registered office at Mergenthalerallee 61, 65760 Eschborn, Germany, registered with the Commercial Register of the District Court in Frankfurt am Main, Germany, under number HRB 7500.