Andrew Zelenka, Principal Consultant, TCS Financial Solutions
Andrew Zelenka, Principal Consultant, TCS Financial Solutions, shares views on how T+2 will reshape settlement and corporate actions in the US capital markets.
The move to T+2 in the U.S. has the potential to reshape not just settlement, but also corporate actions, financing and collateral management. It’s even a prerequisite for cross-border market harmonization.
Q: What is T+2?
It’s a rule change that speeds up settlement in the US financial markets from three days to two days. Current practice allows three days (“T+3”) between the trade date when an order is executed, and the settlement date when the securities are typically exchanged for payment. The proposed implementation moves that up a full day, to “T+2.”
Q: Which entities and financial instruments are covered by T+2?
The shorter settlement cycle will affect any entity that facilitates trading, including retail clients, investment managers, hedge funds, custodians, broker dealers and markets/depositories. Financial instruments covered by T+3 settlement include equities, corporates, municipal bonds and unit investment trusts (UITs) in the U.S. market.
Q: When will T+2 implementation occur?
Industry testing is scheduled to occur in the first half of 2017, with the implementation scheduled for September 5, 2017. The go/no-go decision will be made in August 2017.
Q: What needs to change to achieve T+2 settlement?
Many market practices will have to occur earlier, ideally on the trade date. The industry will have to sequence deliveries to maximize matching and settlement efficiency, and work to manage the possibilities for settlement failure or late settlements.
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