Canada to move to T+1 cycle for a faster settlement period

credit: Shutterstock
credit: Shutterstock

The Canadian Securities Administrators (CSA) has cleared the path for T+1 settlement cycles to take place, which will enable trades of securities assets to be settled within one day. 

Set to be introduced today (28 May) as a part of amendments under Canada’s National Instrument 24-101, T+1 enables faster settlements of trades, such as bonds, stocks and other various assets to be settled in one business day from the date of acquisition.

The National Instrument 24-101 provides a framework for ensuring efficient settlement of the processing of institutional trades – equity and debt – by registered dealers, advisors and other registered firms. 

It has a number of requirements, including that registered firms are required to establish, maintain and enforce policies and procedures designed to achieve the matching threshold of institutional trades.

The move by Canadian regulators also aligns with the US Securities and Exchange Commission’s (SEC) move to T+1 which was announced last March

Also beginning today, the US has moved from a T+3 to a T+2 settlement cycle in 2017, with the move to T+1 the next extension of providing institutional investors with a much more efficient speed of buying, selling and trading stocks and assets. 

An SEC statement broke down further details about the shift to T+1: “If you hold your securities with your broker-dealer, your broker-dealer will deliver the securities on your behalf one day earlier.  

“Similarly, if you are buying securities subject to the ‘T+1’ settlement cycle, you may need to pay for your securities transactions one business day earlier.  If you have a margin account, the ‘T+1’ settlement cycle may impact certain provisions of your margin agreement.”

Canada and the US’ shift to T+1 will keep institutional and capital investors on alert, not just due to the speed of settlement, but also how the technology and parameters can be implemented for other means, such as cross-border payments. 

T+1 has also been touted as being a vehicle to drive financial inclusion and provide a timely solution for smaller businesses who work with lengthier payment processes.