SmartStream


The time has come to take T+1 seriously


The move by the US to shorten settlement times for securities trades to one day after the transaction – or T+1 – has presented banks both challenges and opportunities, as well as setting the pace for the rest of the world to follow. Future Banking speaks to Roland Brandli, director, business strategy at SmartStream, about the implications of T+1 and asks whether banks are ready for the change.


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inancial markets across the world are often led by trends emerging in the US, and T+1 trade settlement is just the latest example. Any financial institution that has dealings with the US markets – no matter where it resides – will have to make the effort to ensure its systems and processes are compliant. Furthermore, market authorities the world over – notably in the UK and Europe – will be keen to catch up. Finalised early in 2023 and due for implementation in May 2024, the adoption of amendments by the Securities and Exchange Commission (SEC) to the Exchange Act Rule 15c6-1 will shorten the trade settlement cycle for most US securities transactions – including all trades in US cash equities, corporate debt,


and unit investment trusts – from the current T+2 time frame to trade date plus one business day, or T+1. Regulators expect the transition to T+1 settlement to bring about a reduction in systemic, counterparty and operational risk, especially in times of high volume and market volatility. Financial institutions’ market and counterparty exposure over the settlement period should lessen, which could lead to a reduction in liquidity requirements. Furthermore, capital and operational efficiencies should result in the form of lower costs, standardised industry processes and infrastructure modernisation. The underlying concept is that time to settlement equates to counterparty risk, and margin


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Future Banking / www.nsbanking.com


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