On May 28, 2024, the trading settlement cycle will shorten from two days to one.
This change is referred to as T+1 settlement cycle (T representing “trade” and 1 representing the number of days in the settlement cycle).
For trust and wealth management organizations, this is a game changer. It’s an opportunity to provide faster trades and more efficient service, and it could help investors with investment decisions if they want to pursue other shares by specific dates.
This is a big industry change — one we want to make sure you are prepared for.
Let’s break down the details of the T+1 settlement cycle change.
Why the change?
One of the biggest reasons for shortening the settlement cycle is the advancement of technology used to transfer securities online. Investors used to need a longer timeframe to settle transactions because some securities needed to be physically delivered. However, most securities are held and delivered online so trades can settle more quickly.
Challenges to consider with the T+1 change
As with any change, there are some challenges worth considering when T+1 goes into effect.
Operational costs: Cheetah is equipped with the necessary updates for the T+1 change. If your systems aren’t equipped to handle the one-day settlement cycle or compliance elements surrounding the change, you’ll need to upgrade to a newer solution. This can be costly. You might also need to consider staffing and how the shortened cycle changes your operations strategy. If more overhead or labor is needed, you’ll need to adjust budgets.
Increased workload: Faster settlement cycles mean faster turnaround times for trade execution, review, approval, and confirmation. This has the potential to put a strain on back-office resources.
Market volatility: T+1 could alter trading strategies that could lead to temporary market volatility. Although temporary, it could be disruptive to your clients and daily operations.
Benefits of T+1
There might be challenges, but there are also big opportunities for the T+1 settlement change.
For example, faster settlement reduces counterparty risk by shortening the window of opportunity for potential defaults. The less time between a trade and settling, the less time there is for anyone to make errors in the process.
There’s also an inevitable efficiency gain. Trades settle more quickly, and faster access to cash and securities can improve overall portfolio management and liquidity.
And although there’s potential for increased operational costs, T+1 could potentially provide cost savings. Reduced settlement risk means lower margin requirements which could lead to cost savings for your institution.
Who does this impact?
The T+1 settlement cycle change impacts anyone or any institution that places or executes trades — wealth managers, investment professionals, portfolio managers, financial planners, trust officers and administrators. If this is you, you’ll want to prepare for the change by taking some proactive steps.
What do I need to do to prepare for T+1?
- Contact your broker-dealer about any changes that need to be made to the delivery of securities. Since the timeframe to execute the trade is shorter, make sure you and your broker-dealer have a clear alignment on what the process looks like to deliver securities before the settlement date.
- Assess your technology to ensure it’s updated and optimized to handle the T+1 changes. Cheetah’s infrastructure is built to handle the T+1 change, and the latest update includes a few more automated steps to help with the trade confirm review process.
- Update your systems as needed. Make sure any institutional or portfolio settings are configured for a one-day settlement cycle. Reach out to your system’s support team for any proactive steps you need to take before May 28.
- For Cheetah users, please reference the Cheetah Learning Center lesson and communication for how to update your portfolio report categories.
- Align with your team. T+1 can impact everyone on your team. The change could require adjustments to back-office processes, trade execution, workflows, and cash management. Make sure your staff is aware of the new settlement cycle and strategize how they can help expedite the delivery of securities.
- Reach out to your clients about any potential impact on their accounts. The good news for your clients is that trades will be executed more quickly. Contacting your clients before May 28 will give them confidence that your institution is equipped and ready to handle the change.
Cheetah users can prepare by taking the T+1 assignment in the Cheetah Learning Center for instructions on next steps and details about Cheetah’s automated confirm reviews.
And if you’re ready to upgrade your solution, we want to help prepare you for the T+1 change. Reach out to our team to find out more information on Cheetah.
