May 28th 2024
Next year, the US Securities and Exchange Commission (SEC) is shortening the standard trade settlement cycle from the current two days (T+2) to one day:
T+1 = Trade date + 1 day
This new settlement period applies to securities traded on stock exchanges, bonds, municipal securities, and mutual funds traded via brokerages.
Why?
- Increase efficiency in the market
- Improve capital requirements
- Promote investor protection
- Serve as a catalyst for industry change
- Reduce firms’ open exposures over the settlement period
- Reduce margin requirements
- Reduce liquidity risk
The move in the US will put pressure on other major markets – where the US goes, the EU usually follows, and often APAC too.
The challenge
The shortened settlement lifecycle involves major adjustments, meaning successful implementation and adoption will have multiple dependencies:
Investment in operations and technology
Compliance costs
Disruption to existing processes.
Market infrastructure support
Risk mitigation
The SEC estimates the change will cost the industry up to:
$4.9B
to implement1
$5.5M
In compliance cost per institution
How will this affect securities lending?
Custodians
borrowers, lenders, agents and collateral managers need to adjust to the new shortened funding model and mobilization of collateral, amongst other considerations.
Firms
will have only one day to source required inventory from the street, when looking to meet funding obligations or other securities deliveries.
Recalls
Firms working on batched, end of day cycles will need major infrastructure updates to manage new compressed timelines.
Accuracy of booking
will be incredibly important – right first time becomes the minimum standard, as there will be less time to remediate errors in advance of settlement.
Corporate event
cycles will change (record dates and everything else), as processing of announcements will be shorter.
What does this mean for Sharegain’s clients?
Sharegain’s SLaaS (Securities Lending as a Service) was built to deal with trades in real time.
Meaning our lenders are far less impacted by the shift to T+1.
Sales & recalls shift together to T+1
Lenders will need to implement new operations to comply with the new cycle with borrowers.
SLaaS takes care of it all, plus gives clients full control through a real-time dashboard.
Corporate events
Changes in existing announced dates will need to shift accordingly in the schedules.
SLaaS manages this process and accommodates any necessary market shifts in this space.
Global lenders
Lenders that cater for borrowers on a global basis will need to have operations across time zones.
SLaaS works in real time across geographic boundaries and time zones.
What about T+0?
Whether it’s T+1 or T+0, Sharegain is ready
SLaaS caters for intraday files and even real time sales, recalls, settlement and exposure management, making it the perfect platform for global securities lending operations.
Whether it’s T+1 or T+0, our tech and team of experts will support you with any aspect of adjusting your securities lending activity.
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