On 9 February 2022, the SEC proposes rules to shorten the standard settlement cycle for most broker-dealer transactions from two business days after the trade date (“T+2”) to one business day after the trade date (“T+1”). What does this mean for Regulatory Disclosure namely Shareholding Disclosures and related regimes?
Artius Global sees a close relationship between Shareholding Disclosures regulations and the standard settlement cycle trend as they are very much interrelated. There will be major ramifications in respect to regulatory reporting demands i.e. Shareholding Disclosure. Driving this is regulators focus on driving transparency in the capital markets resulting in much more efficient markets.
Today, meeting the T+2 disclosure timeline is already a challenge with numerous factors to be accounted for—be it aggregation of positions, staying abreast of the rules across 100+ capital markets, determine the need/what to disclose and finally complete the regulatory forms. A further shortening of the settlement to T+1 will require a transformational change of these institutions and their operations and we dare not fathom what a T+0 world would be like.
At this point it is worth revisiting history, T+1 was the norm back in the 1920s. Capital markets maintained a one-day settlement cycle for transactions in securities. However, over time, the length of the settlement cycle grew to T+5—as a result of the larger number of investors, increasing volume of transactions, and the growing complexity of the technological infrastructure necessary to facilitate the settlement of those transactions.
In the 1980s, the SEC to maintain investor protection, drive risk reduction, and operational efficiency, embarked on shortening the settlement time T+5 to its present T+2, which was enacted in 2017. More recent events exacerbated these changes—in March 2020 following the outbreak of the COVID-19 pandemic, and in January 2021 following heightened interest in certain “meme” stocks—it became evident that shortening the settlement cycles does mitigate the market volatility. Hence SEC’s rationale a T+1 settlement cycle proposal was going to be an obvious choice.
One may postulate at this juncture that the SEC could eventually work towards achieving end of trade date (T+0) if it believes that this could further benefit investors and are in the midst of understanding the challenges faced by market participants.
At the very least for many institutions globally, it will require a step by step change in operational processes, system upgrades, and update of technological infrastructure, assuming digital modernization has been continuously occurring. At the other end of the spectrum, a huge transformational change requires significant digital redesign. Regardless of which end an institution falls into, the adoption of technology is the only way to meet the new proposed T+1 and eventually T+0, if it gets enacted.
Interested to find out more? Are you ready to meet these challenges? Should you want to find more out more contact Artius Global firstname.lastname@example.org .