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MarketScape · 06.24.24

Transitioning to T+1 Settlement Cycles: The Advantage of Firm Expertise

Adapting to the new cycles requires swift operational changes, making the guidance of experienced managers crucial.

  • Volatility & Risk
  • Equity Insights
  • Tax Advantaged Equity
  • Market & Investment Trends

Key Points

What it is

A new settlement cycle means that securities’ transactions in the U.S., Canada, and Mexico will settle within one business day, requiring rapid adjustments from investment teams.

Why it matters

This accelerated timeline requires investment managers to promptly adjust settlement processes, manage liquidity, and streamline operations.

Where it's going

The shift toward T+1 settlement will likely expand globally, highlighting the importance of agile operations for investment managers.

Along with economic challenges and evolving market dynamics, global investors face new hurdles with the recent changes in settlement cycles. The Security and Exchange Commission’s recent move to shorten the standard settlement cycle for most security transactions in the U.S. from T+2 to T+1 marks a significant shift that will present both challenges and opportunities for investment managers. Let’s take a closer look.

 

Under the new , all applicable securities’ transactions from U.S. financial institutions will settle in one business day from the transaction date. Canada and Mexico have also transitioned to a T+1 cycle. Operational changes are inevitable as investment managers adjust to the new trading environment. These changes present certain challenges for global investors, as North American securities will now settle one day earlier than most parts of the world. Navigating this landscape efficiently will be key for investment teams to minimize operational headaches and costs for clients. Firms with scale and experience managing different market settlements are better suited to accommodate this change.

 

Facilitating  will typically incur additional transaction costs in the form of commissions paid to broker-dealers. These costs, for short or long settlements, are essentially a finance charge to cover borrowing cash before or after the standard settlement.  Firms with a long history of managing ordinary share portfolios and experience managing  with different market settlements, such as accounts impacted by global holiday schedules, have the scale and sophistication to guide their clients through the change.

 

The shift to the T+1 settlement cycle in the U.S., Canada, and Mexico present . Investment managers are handling these new challenges in various ways, and some firms have made major operational changes in the way global portfolios are held at custody. Firms with diligent portfolio management teams, advanced technology, and sophisticated global equity trade desks, will be well-positioned to manage these challenges smoothly and efficiently using strategies that have served them well for decades.

Main Point

The T+1 Shift: Key Insights for Investors

Discover how the recent transition to T+1 settlement cycles in the U.S., Canada, and Mexico impacts global investors. Learn about the operational challenges, cost implications, and strategic advantages of working with experienced investment managers in this evolving landscape.

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Mary Lukic, CFP

Head of Tax-Advantaged Equity

Mary Lukic heads the tax-advantaged equity portfolio management team, which is responsible for tax-managed, dividend, ESG (environmental, social and governance) and quantitative active strategies. She is also a senior portfolio manager on the global equities investment team. Mary has extensive experience providing custom equity solutions to high-net-worth families, nuclear decommissioning trusts, settlement trusts, insurance companies, and other taxable and tax-exempt investors.

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IMPORTANT INFORMATION

Northern Trust Asset Management (NTAM) is composed of Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Fund Managers (Ireland) Limited, Northern Trust Global Investments Japan, K.K., NT Global Advisors, Inc., 50 South Capital Advisors, LLC, Northern Trust Asset Management Australia Pty Ltd, and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.

 

Issued in the United Kingdom by Northern Trust Global Investments Limited, issued in the European Economic Association (“EEA”) by Northern Trust Fund Managers (Ireland) Limited, issued in Australia by Northern Trust Asset Management (Australia) Limited (ACN 648 476 019) which holds an Australian Financial Services Licence (License Number: 529895) and is regulated by the Australian Securities and Investments Commission (ASIC), and issued in Hong Kong by The Northern Trust Company of Hong Kong Limited which is regulated by the Hong Kong Securities and Futures Commission.

 

For Asia-Pacific (APAC) and Europe, Middle East and Africa (EMEA) markets, this information is directed to institutional, professional and wholesale clients or investors only and should not be relied upon by retail clients or investors. This document may not be edited, altered, revised, paraphrased, or otherwise modified without the prior written permission of NTAM. The information is not intended for distribution or use by any person in any jurisdiction where such distribution would be contrary to local law or regulation. NTAM may have positions in and may effect transactions in the markets, contracts and related investments different than described in this information. This information is obtained from sources believed to be reliable, its accuracy and completeness are not guaranteed, and is subject to change. Information does not constitute a recommendation of any investment strategy, is not intended as investment advice and does not take into account all the circumstances of each investor.

 

This report is provided for informational purposes only and is not intended to be, and should not be construed as, an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Recipients should not rely upon this information as a substitute for obtaining specific legal or tax advice from their own professional legal or tax advisors. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. Indices and trademarks are the property of their respective owners. Information is subject to change based on market or other conditions.

 

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