Canada to adopt T+1 settlement with US in May 2024
by Luke Jeffs
This article was first published in Global Investor Group.
Canada has said it will move to next-day T+1 settlement on the same day as the US in May next year, making good on an earlier pledge to ensure consistency between the neighbouring markets.
The Canadian Capital Markets Association said Canada will move to T+1 for Canadian equities in sync with the US after the US Securities and Exchange Commission announced on Wednesday US equities will move to T+1 settlement on May 28 2024.
The CCMA said the co-ordination between the US and Canada on the switch to the shorter settlement cycle will reprise the approach in 2017 when both markets moved to T+2 from T+3.
The Association did acknowledge the aggressive deadline for implementation which surprised some who had been pushing for a later, September 2024 cut-over.
CCMA said in a statement: “Capital markets participants are currently involved in a series of major regulatory and market structure initiatives (e.g., respectively, enhanced cost disclosure and the TMX/CDS Post-Trade Modernisation project). As a result, resources will likely have to be adjusted due to the high importance of transitioning to T+1 on the same day as the US.”
The CCMA said it will continue to engage with stakeholders in Canada, the US and further afield on the issues raised by the migration to next day settlement.
The Association said: “There are significant unresolved concerns due to time zone differences. Beyond recalling securities loans and arranging liquidity, other material issues include how to affirm a trade on T when it is already T+1 in a counterparty’s country and how to settle a trade requiring foreign currency conversion on T+1 when transactions in major currencies (other than the Canada/US pairing) settle on a T+2 basis.”
State Street’s global head of custody Chris Rowland said the industry would have preferred the September deadline as that would have allowed more time to prepare.
Rowland said: “State Street will continue to proceed with preparations on the confirmed timeline, although with this decision a smooth transition across the industry will remain very challenging.”
James Pike, the head of business development at Taskize, said this week US T+1 could be a problem for Asian firms trading US stocks: “T+1 could be a particular challenge for Asian firms trading US stocks because they lose that extra day in which to settle. These firms will have to change their operating models and potentially move to a more of a “follow-the-sun” type of model.”