T+1 takeover: US markets slash stock settlement time

NEW YORK: Tuesday saw an upheaval in US markets as the settlement time for US equities, corporate municipal bonds and other securities was halved to one day, or T+1, after the adoption of a new Securities and Exchange Commission rule in February 2023. Here is what to expect:

What is settlement? A trade settlement occurs when the buyer receives the security and the seller is paid. This final stage is handled by the Depository Trust Company (DTC), a subsidiary of the Depository Trust and Clearing Corporation.

What does speeding up settlement mean for markets? Regulators hope a faster settlement process will reduce risk and improve efficiency in the world’s largest markets, as investors will get their money and securities sooner. Currently, as trades take two days to conclude, there can be hiccups before investors receive their money or securities. A trading frenzy around the ‘meme stock’ GameStop (GME.N) in 2021 highlighted the need to reduce counterparty risk and improve capital efficiency and liquidity in securities transactions. SEC Chair Gary Gensler said the change will make the US market infrastructure more resilient, timely and orderly.

How is it going to be implemented? Market participants, such as banks, custodians, asset managers and regulators were working over the weekend to ensure a smooth switch, the Securities Industry and Financial Markets Association (Sifma) said.