T+1 settlement
The shortening of settlement cycles in the securities market from T+2 to T+1 is gaining momentum worldwide, signaling a major shift in the financial landscape including the FX market.
In May 2024, the US and Canadian securities markets moved to T+1 settlement, impacting a significant number of cross-border transactions due to the substantial holdings of US securities and US equities in foreign portfolios.1
The shortened timeframes for mobilizing the required currency for T+1 securities trades in the US and Canada may necessitate FX trades to be settled same day (T+0) in Europe and Asia. In other words, the shift to T+1 for securities may require shifting to T+0 for FX, at least for some parts of the business.
In the US, when the equity market closes at 16:00 EST (22:00 CET), there is limited time to fund trades in the required currency. To meet the T+1 schedule, the associated FX instructions should be submitted to CLS by the beginning of the day of settlement, 12:00 CET on day T+1 (the initial pay-in schedule (IPIS) deadline), in order to be settled on day T+1. Such time constraints may prevent market participants from using CLSSettlement for those instructions.
With such compressed timelines, execution and operational efficiency across the asset manager and fund community will be paramount. CLS offers several additional products to support the community.
For instructions that do not meet CLS’s 00:00 CET IPIS deadline, CLSNet, an automated and standardized bilateral netting calculation service, can help market participants reduce funding requirements and payment instructions and enhance operational efficiencies.
CLSTradeMonitor offers asset managers and funds near real-time visibility of all CLSSettlement payment instructions across their custodians and executing brokers, allowing for swift identification and resolution of exceptions.
Market participants can improve their understanding of market liquidity and risk positions through CLS’s comprehensive suite of data products – CLSMarketData.
1. Almost 20% of securities and 16% of equities are owned outside the US, Department of US Treasury, “Foreign Portfolio Holding of US Securities”, 30 June 2022.
Adoption of T+1 in the securities market
What is T+1 (and T+2, T+3)?
T+1, T+2, and T+3 are abbreviations that refer to the settlement date of a financial transaction such as a securities or FX trade. The “T” stands for the trade date, which is the day the trade takes place (e.g., is executed on an exchange). The numbers 1, 2, or 3 denote how many days after the trade date the settlement—e.g., the actual transfer of money and security ownership—takes place. T+0 refers to same day settlement, when the transaction is settled on the same day as the trade date.
Useful links
- AFME T+1 Update – AFME
- Accelerated Settlement Taskforce – GOV UK
- GFXD_FX_Consideration_for_T1 – New York Fed
- Roundtable on shortening the settlement cycle in the EU – European Commission
- SEC.gov | New “T+1” Settlement Cycle – What Investors Need To Know: Investor Bulletin – SEC