T+1 settlement
In May 2024, the US and Canadian securities markets moved to T+1 settlement. Market participants raised concerns that a significant number of cross-border transactions would be impacted due to time zone differences with Europe and Asia and the substantial holdings of US securities and US equities in foreign portfolios. 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.
In response to these concerns, CLS engaged extensively with the industry and conducted a thorough impact assessment ahead of the May 2024 transition. The analysis found that only around 1% of CLSSettlement’s average daily settlement value (ADV) of USD6.6 trillion (as of May 2024) was tied to non-US investment funds trading US securities and settling FX on a T+1 basis.1 CLS also engaged with its settlement member community to assess the feasibility of any operational changes to CLSSettlement, such as extending the 00:00 CET initial pay-in schedule (IPIS) deadline.2
No changes were made, as the impact was found to be limited, and any changes would have necessitated changes to systems and processes across the whole ecosystem that would be subject to a comprehensive risk assessment and any required approvals.
Post-implementation, there was no negative impact to CLSSettlement’s ADV. This indicated that both sides of the market were well prepared for the transition to T+1. Furthermore, there has been increased interest in our services that can assist market participants who may be impacted by the move to T+1. 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 US securities and 16% of US equities are owned outside the US. Department of US Treasury, “Foreign Portfolio Holding of US Securities”, 30 June 2022. 2 Update on the potential change to CLSSettlement timelines following the move to T+1 securities settlement
What is T+1 and T+2?
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 (for example, the day it is executed on an exchange). The numbers 1, 2, or 3 denote how many days after the trade date that settlement takes place – that is, the actual transfer of money and security ownership.
Historically, T+3 was the common settlement period, but it has shortened over time to T+2 (and now T+1) due to the advent of new technology and faster processing capabilities. T+2 remains the convention in the spot market.
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
