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The US is Moving to a Shortened Settlement Cycle

by Kelly Caldwell

t2.pngOn September 5th 2017, the U.S. Securities Settlement Cycle will shorten from “trade date plus three days” or T+3 to T+2. The last time a move was made to shorten the settlement cycle was in 1995, when it changed from T+5 to T+3.  Whereas trading today is almost instant the settlement process is not. This push to a shortened settlement cycle is a beneficial step in aligning these two processes. 

What is a securities settlement cycle?

The settlement cycle begins on the date a trade is executed. Then on the third day after a trade is executed it is settled, the seller receives payment for the trade and the buyer receives the security. This involves careful coordination among intermediaries to ensure that payments are made and securities are safely transferred to rightful owners.


Why is the settlement cycle shortening to T+2?

The goal of shortening the settlement cycle is to increase efficiency while reducing risks to the financial system. The greater the time between the execution of a trade and settlement, the greater the risk to the parties involved. The shorter the settlement cycle time, the smaller the risk to buyers, sellers, investment companies, clearing houses and the market. It will also align the US market with other countries that have already adopted the shortened settlement cycle.     


What does this mean for our clients?

Transactions on most securities will process much faster as the settlement cycle will now be exceedingly shortened. This change will be seamless to our clients allowing us to continue to provide personal trust services using the latest technology and most efficient systems.


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