Industry Groups Cheer T+1 as a Success

The move to T+1, the shortening of the securities transaction settlement cycle from two business days after the trade date to one, was successful, according to a new report released by the Securities Industry and Financial Markets Association, the Investment Company Institute and The Depository Trust & Clearing Corp.

“After more than three years of rigorous and coordinated activities to plan for — and ultimately implement — a shortened settlement cycle, the industry is recognizing reduced settlement risk across the U.S. capital markets,” the T+1 After Action Report states. “Firms are now able to make better use of their capital while promoting financial stability. Ultimately, T+1 has provided the appropriate balance between increasing efficiencies and successfully mitigating risk for the industry.”

The move to T+1 started in late May.

SIFMA, ICI and DTC warn, however, that moving to T+0 (or same-day settlement) is not simply the next step in the process.

“It would require a comprehensive independent review,” the groups said. “While T+1 has brought many benefits, further accelerating to T+0 as an industry standard could introduce significant risks and complexities. Instead, the focus should remain on global market adoption of T+1.”

The group outlined in a joint statement why the move to T+1 was successful, as demonstrated by the following metrics:

Affirmations:

• Nearly 95% of transactions are meeting the affirmation criteria by the 9:00 PM ET cutoff on the trade date, as set by DTC. “This marks a notable improvement from the 73% affirmation rate recorded at the end of January 2024,” the groups said.

Clearing Fund:

• “In a T+1 environment, the NSCC Clearing Fund decreased on average by U.S. $3.0 Billion (23%) from the prior three-month average value of U.S. $12.8 Billion in a T+2 environment to U.S. $9.8 Billion,” the groups said. “The NSCC Clearing Fund decreased on average by U.S. $2.4 Billion (20%) from the prior month average value of $12.2 Billion in a T+2 environment to U.S.$9.8 Billion post T+1 implementation.”

Fail Rates:

• The average continuous net settlement fail rate — the percentage of long or short positions that do not settle on the settlement date — for July 2024 was 2.12%, consistent with T+2 settlement rates.
• Similarly, the average DTC non-CNS fail rate was 3.31%. Again, consistent with T+2 settlement averages.

In July, the Securities and Exchange Commission launched a sweep of advisors’ compliance with T+1.