North America T+1 Settlement
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Key topics for client consideration
Key topics for client consideration
- Timeline changes:
- Affirmation: In a T+2 settlement cycle, trades affirmed prior to affirmation cutoff at 11:30 AM on T+1 are sent to the DTC for settlement; for prime broker flow, trades are sent to NSCC’s Continuous Net Settlement (CNS) for netting. Trades that don’t make the affirmation cutoff are processed as delivery orders (DOs), a less efficient and more costly process. Under the new rule, trade affirmation will need to occur by 9pm ET on the day of the trade (T0) in order to minimize settlement failure.
- Allocation: Where a client allocates a trade among a number of accounts, this should occur as soon as practicable on T0. UBS will align its target timeframes with industry guidelines, meaning allocations should be completed by 7pm ET on T0. This is also applicable for the submission of PB trade files.
- Remediation: Market participants will have less than 24 hours to remediate any trade errors and prevent failure, compared to 48 hours in the current T+2 settlement cycle. This places a greater emphasis on ensuring Right First Time trade bookings, as the shortened cycle will challenge brokers and custodians’ ability to handle large scale amendments.
- Cash funding including projection and foreign exchange (FX)
- Clients may need to ensure that FX transactions to fund trades are settled on a same day or T+1 basis, and may wish to consider the relative liquidity of currencies at time of transaction
- Clients should also consider the knock-on impact of FX settlement failures on their ability to conduct USD or CAD transactions which settle on T+1
- Funding will need to take place in a shorter time period to ensure proper cash and liquidity management
- Additional collateral and margin requirements will need to be considered on T0
- Stock Lending
- In the event that loaned securities are recalled, these will need to be identified in a shortened timeframe. Lenders will have less time to recall loaned securities and borrowers will have less time to return them. Extensive behavioural change among all market participants will be required.
- Where overnight batch processing is currently utilised, the shorted settlement cycle should encourage participants to move towards real time processing.
- ADRs, ETFs and Security Based Derivatives
- Any trade with an underlying that is in-scope for T+1 settlement will also need to settle in T+1
- Any trade with an underlying that is in-scope for T+1 settlement will also need to settle in T+1
- International Settlement Cycles
- When using the proceeds of sale of a security in another market to fund the purchase of a security in the US market, the impact of the compressed US cycle on the settlement funding process should be considered. This will be most pronounced in APAC due to the substantial time zone difference with the US.
- When using the proceeds of sale of a security in another market to fund the purchase of a security in the US market, the impact of the compressed US cycle on the settlement funding process should be considered. This will be most pronounced in APAC due to the substantial time zone difference with the US.
- Corporate Actions
- Clients and their custodians will need to review processes for corporate action notifications, due to the shortened timeframe between ex-date and record date
North America T+1 Shortened Settlement Cycle: Overview (December 2023)
North America T+1 Shortened Settlement Cycle: Preparing for T+1 (December 2023)
North America T+1 Shortened Settlement Cycle: APAC, EMEA and FX (January 2024)
If you have any questions on the SEC proposal, or wish to discuss any aspect further, please contact ubs-ib-na-t1@ubs.com or your UBS Sales representative.
