Three weeks after market participants in the U.S. successfully shifted to a shorter securities settlement cycle, SEC Chair Gary Gensler on June 20 highlighted the move’s benefits and shared best practices with stakeholders in the United Kingdom considering a shift of their own.
On May 28, stakeholders in the U.S. officially began accelerating the settlement cycle to T+1 — settling a trade one business day after it is executed — from T+2, or two business days.
The shift, required by the Securities and Exchange Commission in a February 2023 rule, impacts stock and bond trades and is designed to benefit investors, including fund managers and pension plans, and reduce the credit, market and liquidity risks in securities transactions faced by market participants, according to the SEC.
“Shortening the market plumbing of clearance and settlement saves money,” Gensler said in a speech before the Accelerated Settlement in the U.K. Conference. “It lowers risk. It increases efficiency, boosts liquidity and promotes resiliency of the markets.”
Cutting the settlement cycle in half reduces the amount of margin that must be placed with the clearinghouse, Gensler noted. “The way the math works it’s likely to average 29% savings over time,” he said. “First indications reported by the clearinghouse show a savings of 25%, or more than $3 billion, resulting from the move to T+1.”
Gensler said transitioning to T+1 is a “team sport” and credited market participants with devoting the necessary time and resources to make the May 28 transition a success.
He suggested that the U.K. select a date for a transition of its own and stick to it. “It helps to organize everybody’s planning and implementation,” Gensler said. “No doubt, there will be some market participants who raise concerns with meeting whatever date you select. We benefited, though, from having an announced implementation date as well as a well-thought-out timeline and schedule.”
