Preparing for the migration to T+1 Settlement Cycle
On Feb 15, 2023, the SEC adopted a rule amendment to shorten the standard settlement cycle for most routine securities from two business days (“T+2”) to one business day (“T+1”) for any US securities eligible to be cleared and settled via the Depository Trust Company ("DTC"). This rule will take effect on 28th May 2024.
In Canada and Mexico, the Canadian Capital Markets Association and the Contraparte Central de Valores respectively, announced similar changes which will come into effect on 27th May 2024.
The benefits of moving to T+1 settlement cycle should include:
- Reducing credit, market and liquidity risks arising from unsettled securities trades
- Reducing the number of unsettled trades, exposure to unsettled trades and potential price movements in the underlying securities
Impacted Products:
Products impacted by the move to a T+1 settlement cycle include, but not limited to, Equities, ETF’s, Corporate and Municipal bonds, asset backed securities, money market instruments and other financial instruments consisting of various security types.
Key considerations:
- Fundamentally, all related processes, including securities linked FX processes, that are completed over 2 days today will be accelerated by, at minimum, 1 day.
- Clients will need to complete their allocation processes and get all relevant data to their custodians no later than 7pm ET, or as soon as practicable, on trade date (“T0”) to allow organizations sufficient time to process allocations by 9pm ET.
- Trade affirmation must be made as soon as is practicable on T0 to avoid settlement failure.
- Clients will now need to remediate breaks on T0 in order to avoid settlement failures.
Further information can be found on the following resources:
- T+1 press release, with links to the Final Rule and Fact Sheet, issued by the Securities & Exchange Commission (SEC) on February 15, 2023.
- Shortening the Settlement Cycle website, hosted by the Depository Trust and Clearing Corporation (DTCC), which features links to the T+1 Implementation Playbook and T+1 Test Approach: Detailed Testing Framework, as well as related press releases, articles and T+1 frequently asked questions (FAQs) for industry participants.
Contact us:
If you have any questions about how T+1 will affect you or wish to discuss any aspect further, please contact t1.settlement@db.com or your dedicated service representative or sales contact.
Deutsche Bank T+1 FAQ's
Show content of What is T+1 and why is it happening?
On February 15, 2023, the SEC adopted changes to 15c6-1 and 15c6-2 shorting the settlement cycle affecting most US securities from T+2 days to T+1 day and is due to come into effect on May 28, 2024.
The SEC expects a compressed settlement cycle will:
- reduce risks and associated costs arising from unsettled trades
- bring efficiency between execution and settlement by reducing the number of unsettled trades and potential price movements in the underlying securities
- aid the release of liquidity and better use of capital
Show content of What are the key changes and implications of T+1 settlement?
There are 3 fundamental changes to existing practices:
- Trade allocation: where large trades are allocated across several accounts, this allocation process must occur as soon as practicable on trade date (T0). The expectation is that allocation should occur before 7pm ET on T0 to allow organizations sufficient time to process affirmations by 9pm ET on T0.
- Trade affirmation: will also need to be made as soon as practicable on T0 in order to achieve the recommended deadline of 9pm ET
- Clearing breaks: will need to be resolved on T0
Show content of Where can I learn more about T+1 and its effects on market participants?
Please refer to the following FAQ's and industry update links provided by DTCC:
Show content of Which products will be impacted by T+1?
A detailed list of products can be found here but include equities, corporate and municipal bonds, unit investment trusts among others.
Show content of What should I be considering prior to go-live?
Deutsche Bank encourages all clients to consult the industry material provided above to make their own assessment of how the change will impact their circumstances.
However, at minimum, clients will need to ensure the following:
- The ability to correctly complete their allocation processes by 7pm ET on T0
- The ability to match affirmations to their client's trade instructions by 7pm ET on T0
- International clients will need to consider that funding dependent upon FX settlement may not occur in time thus ensure FX transactions settle on same day or T+1
Failure to complete the above may result in an increase in settlement fails and costs.
Show content of Will there be any exceptions for foreign investors in different time zones?
There are currently no exceptions proposed.
Show content of Will there be penalties for late settlements after T+1 is instituted?
There are no penalties proposed. However, note that an increase in settlement fails will result in increased funding costs.
Show content of How can I best prepare myself for T+1?
We encourage all clients to familiarize themselves with industry timelines, expectations, and considerations outlined on the Shortening the US Equities Settlement Cycle DTCC website.
Familiarize yourself with industry timelines, expectations, and considerations outlined on the Shortening the US Equities Settlement Cycle DTCC website.
Perform a readiness assessment and plan accordingly.
Discuss your focus areas or areas of concerns with your dedicated client service representative or sales contact.
Notify your dedicated client service representative or sales contact if you want to perform testing with Deutsche Bank.
Show content of Will Deutsche Bank change its operational support hours because of T+1?
We will continue to review our operating model and leverage a follow-the-sun approach where appropriate. Please contact your dedicated client service representative or sales contact if you have specific concerns.
Show content of How does Deutsche Bank plan to meet the SEC’s 15c6-2 requirement regarding written agreements, policies and procedures?
Deutsche Bank is currently examining its existing policies and procedures and will be in touch if there are any actions required from its clients.
Show content of When is industry testing scheduled to begin?
DTCC industry testing is due to begin August 14, 2023, in which Deutsche Bank will be participating.
We encourage you to review the DTCC T+1 Test Approach: Detailed Testing Framework to learn more about industry testing.