Canada Shifts to T+1 Settlement Cycle, US to Follow Tomorrow


Canada has transitioned to a T+1 settlement cycle
for equity and long-term debt market trades. This shift, which aligns with
similar regulatory changes in the United States, promises to streamline the
settlement process and reduce risks associated with delayed trades.

Improving Market Liquidity

The Canadian Securities Administrators (CSA) confirmed
in a statement on its website that amendments to National Instrument 24-101
Institutional Trade Matching and Settlement are now in effect. These changes
reduce the time frame for matching institutional trades from two days after the
trade date (T+2) to one day (T+1). This step aligns with the US market, which will adopt
the T+1 settlement on May 28, 2024.

National Instrument 24-101 provides a framework to ensure timely and efficient settlement of institutional trades by
registered dealers and advisers. It requires registered firms to implement and
enforce policies aimed at achieving the new T+1 matching, thereby enhancing
market stability and reducing the risk of unsettled trades.

Starting June 3, 2024, Canada’s securities auctions, including treasury bills, bonds, and cash management bond buybacks, will adhere to the T+1 settlement cycle. This transition
followed the Canadian secondary market’s shift to T+1 today (Monday).

Treasury bill auctions will continue to occur on
alternating Tuesdays, with settlements moving to Wednesdays. Similarly, bond
auctions will settle on the business day following the auction. The Bank of
Canada and government authorities will monitor this transition to ensure a
smooth shift.

Harmonizing Canadian and US Markets

The CSA’s decision to move to T+1 settlement aligns
with changes in the US market to ensure cross-border consistency and
facilitate smoother international transactions. This harmonization is
expected to boost investor confidence and enhance the overall efficiency of
North American capital markets.

By reducing the settlement cycle to one day, Canada
aims to mitigate counterparty risks and improve liquidity in the markets. The
T+1 settlement cycle represents a significant step forward in modernizing the
financial infrastructure, positioning Canada alongside leading global markets
in terms of settlement efficiency.

Settlement in securities trading refers to the transfer of securities to the buyer’s account and cash to the seller’s account.
Currently, the standard settlement cycle, T+2, allows for
two business days between the transaction date and the settlement date. The introduction of the T+1 settlement shortened this timeline to just one business day. Similarly, investors buying securities subject to
the T+1 settlement cycle will pay for their transactions one business
day earlier.

This article was written by Jared Kirui at

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