On September 5, 2017, the United States financial services industry is changing the standard trade settlement cycle from trade date plus 3 days (“T+3”) to trade date plus two days (“T+2”). The new cycle aims to better align the U.S. financial marketplace with other major international markets that have already adopted shorter settlement cycles. The change also intends to reduce trade-related risk while increasing operational efficiency throughout the industry.
What Will Change?
Currently, investors have a maximum of three days to deliver payment for most types of exchange-traded securities purchased in the financial marketplace. The implementation of the new T+2 cycle truncates this timeline, requiring investors to now pay for their purchases within a two business day window. The new settlement cycle will impact a wide range of securities, including stocks, bonds, municipal securities, exchange-traded funds (ETFs), certain mutual funds, and exchange-traded limited partnerships.
What Differences Will I See?
The main change individual investors will notice is that they will receive funds from selling securities more quickly, but will also need to have cash on hand to pay for security purchases in a shorter time period. Corporate actions processing will also be updated based on the revised settlement cycle, though no major changes should be apparent to investors.
What Has FTC Done to Prepare?
In anticipation of this regulatory change, Fiduciary Trust Company (FTC) has taken proactive measures to ensure smooth implementation and a seamless transition to the new T+2 settlement cycle. Our custody, compliance, IT, and legal teams have worked in tandem to assess which internal processes will be affected by this change and have established best practices for trade settlement under the new cycle. We have held numerous interdepartmental training sessions, educating employees on this new regulation to ensure a firm-wide understanding of new processes. FTC has also participated in test security movement and control (SMAC) environments with our technology partner FIS/SunGard, which simulates trade activity under the new settlement process. We will continue utilizing the testing environments and working with both FIS/SunGard and DTC (the Depository Trust Company) in the coming weeks to ensure a seamless transition. Fiduciary Trust Company is well-positioned for the move to T+2 in September and remains committed to delivering innovative and superior service to all of our clients.
The opinions expressed in this article are as of the date issued and subject to change at any time. Nothing contained herein is intended to constitute investment, legal, tax or accounting advice and clients should discuss any proposed arrangement or transaction with their investment, legal or tax advisors.