Key Points
What it is
A new settlement cycle means that securities’ transactions in the U.S., Canada, and Mexico will settle within one business day, requiring rapid adjustments from investment teams.
Why it matters
This accelerated timeline requires investment managers to promptly adjust settlement processes, manage liquidity, and streamline operations.
Where it's going
The shift toward T+1 settlement will likely expand globally, highlighting the importance of agile operations for investment managers.
Along with economic challenges and evolving market dynamics, global investors face new hurdles with the recent changes in settlement cycles. The Security and Exchange Commission’s recent move to shorten the standard settlement cycle for most security transactions in the U.S. from T+2 to T+1 marks a significant shift that will present both challenges and opportunities for investment managers. Let’s take a closer look.
Under the new , all applicable securities’ transactions from U.S. financial institutions will settle in one business day from the transaction date. Canada and Mexico have also transitioned to a T+1 cycle. Operational changes are inevitable as investment managers adjust to the new trading environment. These changes present certain challenges for global investors, as North American securities will now settle one day earlier than most parts of the world. Navigating this landscape efficiently will be key for investment teams to minimize operational headaches and costs for clients. Firms with scale and experience managing different market settlements are better suited to accommodate this change.
Facilitating will typically incur additional transaction costs in the form of commissions paid to broker-dealers. These costs, for short or long settlements, are essentially a finance charge to cover borrowing cash before or after the standard settlement. Firms with a long history of managing ordinary share portfolios and experience managing with different market settlements, such as accounts impacted by global holiday schedules, have the scale and sophistication to guide their clients through the change.
The shift to the T+1 settlement cycle in the U.S., Canada, and Mexico present . Investment managers are handling these new challenges in various ways, and some firms have made major operational changes in the way global portfolios are held at custody. Firms with diligent portfolio management teams, advanced technology, and sophisticated global equity trade desks, will be well-positioned to manage these challenges smoothly and efficiently using strategies that have served them well for decades.
Off-cycle settlements occur outside the standard settlement period. These can result in additional transaction costs as they may require special handling and financing to accommodate the different timing.
Equity baskets refer to a collection of stocks grouped for trading purposes. Investment managers often use them to diversify holdings and manage exposure to different sectors or markets.
The T+1 settlement cycle settles transactions one business day after the trade date.
Main Point
The T+1 Shift: Key Insights for Investors
Discover how the recent transition to T+1 settlement cycles in the U.S., Canada, and Mexico impacts global investors. Learn about the operational challenges, cost implications, and strategic advantages of working with experienced investment managers in this evolving landscape.
Navigating High-Yield Credit Opportunities in a Resilient Market
Mary Lukic, CFP
Head of Tax-Advantaged Equity
Mary Lukic heads the tax-advantaged equity portfolio management team, which is responsible for tax-managed, dividend, ESG (environmental, social and governance) and quantitative active strategies. She is also a senior portfolio manager on the global equities investment team. Mary has extensive experience providing custom equity solutions to high-net-worth families, nuclear decommissioning trusts, settlement trusts, insurance companies, and other taxable and tax-exempt investors.
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