The first anniversary of the shortened equity settlement period (T+1) for US equities markets and Canada in May 2025 was significant and is an opportune moment to reflect on the impact and success of this significant reform. The transition to T+1 has been remarkably positive, with markets and participants adapting well to the new regime. This milestone marks a pivotal moment in the evolution of global financial markets.
Key observations
- The tectonic plates of market infrastructure are shifting again
- History shows that liquidity begets liquidity
- The next year or two is not the time to fall behind in modernizing market infrastructure
Global adoption of T+1
The success of T+1 in the US has sparked interest worldwide, with many markets actively planning to follow suit by reducing their current T+2 settlement period to T+1 within the next 2 - 5 years. The UK and EU are expected to lead this transition, aiming for implementation by October 2027. Meanwhile, Australia and New Zealand are likely to adopt T+1 towards the latter end of this timeframe. Each market must make decisions based on its unique local needs, while acknowledging the interconnected nature of global markets.
Extended trading hours: The next chapter
In addition to the T+1 settlement period, US markets are already planning to extend trading hours to 23 hours a day, five days a week (23x5). This ambitious move aims to enhance market competitiveness and accessibility. The combination of these two reforms – shortened settlement periods and extended trading hours – will undoubtedly reshape the landscape of global equity markets.
Impact on market competitiveness
These reforms are poised to have a profound impact on market competitiveness. As markets strive for growth, the question arises: Will increased accessibility to live US bids and offers during the trading hours of other regions, such as the UK or Australia, drive more money into local markets? Even if the influx is primarily retail money, the aggregated global investment could significantly benefit US markets, potentially offsetting recent institutional outflows.
Observing micro reforms and international listings
It will be fascinating to observe these micro reforms in action and their influence on the trend of international companies seeking US listings. The depth and liquidity of US markets have long attracted international firms, and these changes may further drive inbound listings to exchanges like Nasdaq and NYSE. While extended trading hours might slightly dilute liquidity across a longer day, they are likely to attract additional international interest from offshore investors, capturing non-US currencies, such as pound or yen, in the process, which may have been invested outside the US otherwise.
Future transformations: Tokenization and 24x7 trading
While some industry experts advocate for more transformative changes, such as 24x7 trading and the tokenization of securities on ledgers, these innovations introduce additional complexities. At present, we should be focusing on the immediate changes occurring here and now over the next 2-3 years, emphasizing the importance of modernizing market infrastructure during this pivotal period.
Entering a new phase of market competition
It is evident we have entered a new phase of competition between markets, driven by these reforms. This shift is bound to catalyze further changes with far reaching possibilities.
