Should we expect T+1 implementation to be delayed in the US?

While all the talk is about preparation and shock around an early date, whispers behind the scenes suggest that the industry is ultimately expecting a delay from regulators, though this is probably not the best way to approach the run-up period.

The answer to the question above is: probably. Having just penned a 5,000 word feature on T+1 for our Spring Issue, I can confirm the challenges the collective securities industry faces are quite simply insurmountable.

No matter the region, the organisation size or function, everyone is facing an uphill challenge to prepare across so many different aspects of their business. It’s not just trading and settlement, T+1 impacts securities lending, corporate actions and foreign exchange. It requires changes in systems, processes and staffing. It’s going to hit funding, liquidity, and of course settlement fails – something which already represents a global problem.

Automation is a simple answer, but one that’s been staring market participants in the face for years now without some budging on the concept.

A matter of 14 months is just quite simply not long enough for the industry to prepare – hence the surprise when the Securities and Exchange Commission (SEC) announced the May 2024 date last month. But what is likely, is that this date will ultimately be extended, possibly to the date over Labour Day weekend which the industry was pushing for in the first place.

Hopefully the May 2024 deadline will achieve its intention of placing pressure on the industry to prepare, but when you consider the lift involved in the shift to T+1 in comparison with the transition from T+3 to T+2, and the fact that there’s less build up time, it’s hard to believe that the date will stay put.

The rush by the US is also set to place it years ahead of its European counterparts, with some close to the matter suggesting we could be six-to-eight years away. But it’s in the APAC region when the timeframe for post-trade activity to be completed is going to be most felt, along with FX and pre-funding issues.

Foreign participation makes up such a significant portion of the US market; however they seem to have been overlooked in the decision to move to T+1 and the ensuing timeline. As was the impact on various other activities during the recent open hearing. 

So while it’s a potentially a dangerous sentiment to share, there is always a chance that 28 May 2024 isn’t ultimately the date on which the US makes the transition to T+1, and if I had to make a guess I would say that we end up with September 2024 being the eventual transition, at the earliest. To rush this through could have serious detrimental impacts on the global markets – though I would not change preparation plans because of this, as participants will already need all the time they’ve got.

Oh, and keep an eye out for the 5,000 article – it’s a bit less ‘ranty’ than this article and far more in-depth.