The U.S. Securities and Exchange Commission (SEC) has made a significant move to shorten the settlement cycle for securities transactions from two business days to one, starting on May 28, 2024. This change, known as T+1, is expected to bring various benefits such as reducing counterparty risk and increasing capital and margin efficiencies.
The move to T+1 comes in response to the events surrounding the “meme stock” GameStop in 2021, with the U.S. aiming to ensure faster settlement of securities transactions. While the U.S. is set to implement T+1 on May 28, countries like Canada and Mexico will begin settling trades in one business day effective May 27.
In Europe, the European Union is also considering a move to T+1, but the timing has not been announced yet. The European Securities and Markets Authority is currently consulting with market participants to understand the implications of such a move. Financial services experts believe that the EU’s transition to next-day settlement may be more complex due to the fragmented nature of stock trading in the region.
Meanwhile, the UK is also looking to speed up settlement in its markets, with a potential switch expected between 2025 and 2026. Authorities in the UK have set up a task force to assess the benefits and challenges of next-day settlement, with an interim report expected in the first half of this year.
In Asia, India has already transitioned to settling trades one day after the trade and is now aiming for same-day settlement. China, on the other hand, has T+0 settlement for stock and T+1 for cash settlement. Most other markets in the region are still on T+2, observing and waiting to see how markets that have already made the transition to T+1 fare.
Overall, the move to T+1 in the U.S. and potentially in other regions around the world is expected to streamline securities transactions, reduce risks, and improve efficiency in the market. Stay tuned for more updates on how different markets adapt to this new settlement cycle.
