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Continuing our updates on important market and regulatory developments, we wanted to share some information on the move to shorten the securities settlement cycle from the current T+2 (trade date plus two days) to T+1 (trade date plus one day) standard.
In February, the Securities and Exchange Commission (SEC) released proposed rule amendments to move all US securities transactions to T+1 in 2024. The SEC has also solicited feedback on a future transition to T+0 thereafter. Comments on the SEC consultation closed on April 11, 2022. The Canadian Capital Markets Association is proposing that Canada convert to T+1 at the same time as the US.
In our response, available here, we acknowledged the benefits that reduced settlement cycles can deliver to market participants, including reductions in risk and costs. However, we expressed our concern that issuers and their retail shareholders should not be disadvantaged by new requirements and costs, including potentially reducing registered shareholders’ ability to trade in a timely manner.
What are the changes?
The move to T+1 will impose operational and regulatory changes on broker-dealers and their clients. Issuers will also be impacted in relation to:
- Corporate action processes and timings
- Anticipated standardized corporate action announcements for Exchanges
- ETF and mutual fund issuances and redemptions
It does not appear that the SEC is intending to change transfer agent rules. However, as with the earlier move to T+2, there will nonetheless be considerable operational and system changes imposed on transfer agents.
We do anticipate that there will be some impact on registered shareholders, particularly certificated shareholders, in their engagement with broker-dealers. Our response highlighted that registered shareholders should not be disadvantaged by the change and proposed some mechanisms to address this risk. One element of this is the continuing market dialogue around dematerialization.
Our response also details issues that need to be considered as the SEC looks further at this topic, including preventing an unfair cost and operational burden on issuers, and their agents, as well as protecting shareholders.
What about T+0?
The SEC requested feedback on subsequent pathways to T+0, i.e., net settlement at end of day on trade date. In our view, this is a considerably more complex proposition than T+1 and will require fundamental reconfiguration of market systems and processes. Any transition to T+0 is likely to be incremental and led by pilot programs. Extensive industry dialogue to map out the impact of possible approaches will be necessary.
When will this happen?
The SEC proposed that T+1 be mandatory from March 31, 2024. While we are comfortable that Computershare can meet this timeline, we anticipate a minor change in the date to accommodate market participants’ request for conversion over a three-day long weekend, and potentially to align timelines between the US and Canada.
Following our submission, our aim is to further engage the SEC on the topics we’ve raised in our submission, and to continue to represent the impact on issuers and transfer agents through industry working groups and direct engagement. We will provide you with a further update once the SEC presents the final rules.
If you have any questions or would like to directly engage on any of the above topics, please reach out to your relationship manager.
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