On February 15, 2023, the Securities and Exchange Commission (SEC) adopted a rule to shorten the standard settlement cycle from two business days after the trade date (T+2) to one business day after the trade date (T+1).
The change, effective May 28, 2024, is intended to provide numerous market benefits, including lower risk, improved efficiencies, increased liquidity, and reduced volatility. For hedge funds and asset managers, the shorter timeframe between execution and settlement can also reduce the margin needed to offset settlement risk.
Paradoxically, the impending transition to T+1 has introduced an element of short-term risk to the market. With the SEC enforcing a shorter settlement cycle, industry participants must ensure their technology and internal operations - and those of their clients and counterparties - can accommodate the change.
Both the buy- and sell-sides should prepare to combat vulnerabilities, including legacy technology and settlement delays. In the short term, mitigating these risks will rely heavily on people-based solutions. Long-term solutions require systemic technology upgrades at all stages of the settlement cycle. This whitepaper outlines: