T+1 Settlement
What is T+1 Settlement?
T+1 settlement refers to the process where securities transactions are settled one business day after the transaction date. This means if you execute a trade on a Monday, the settlement—the official transfer of securities and payment—will occur on Tuesday.
When will the T+1 Settlement come into effect?
The transition to T+1 settlement will take effect on May 28, 2024, for U.S. securities trades. This changes the current T+2 settlement cycle, which has been in place since 2017.
Which securities are affected by the T+1 settlement?
Stocks, bonds, exchange-traded funds (ETFs), certain mutual funds, municipal securities, Real Estate Investment Trusts (REITs), and master-limited partnerships (MLPs) traded on U.S. exchanges will move from T+2 to T+1.
Are government bonds included in the T+1 settlement change?
No, government bonds already settle at T+1, so there will be no change for these securities.
Why is the settlement cycle being shortened to T+1?
The shift to a shorter settlement cycle is driven by advancements in technology and a preference from investors for quicker settlement times, enhancing efficiency and potentially reducing certain risks in trading and portfolio management.
How will the T+1 settlement impact investors?
For most investors, especially those who trade through brokerage firms that require pre-funding of trades, the impact will be minimal. However, investors may need to consider the quicker settlement times when planning trades around specific events like proxy votes or when adjusting cost basis information for tax purposes.
Are there any potential tax implications with T+1 settlement?
Yes, with T+1 settlement, investors will have only one business day instead of two to make any necessary adjustments to their cost basis for tax purposes. This can affect decisions related to the accounting of investment costs and the calculation of capital gains or losses.
How can I prepare for the change to T+1 settlement?
Investors should familiarize themselves with the new settlement timeline and consider any adjustments to their trading, portfolio management, or tax planning strategies. Consulting with a financial advisor may also help in understanding the specific implications for individual investment situations.
Will T+1 settlement affect the way I trade?
For the average investor, the change to T+1 settlement is unlikely to require significant adjustments to the way trades are executed, especially for those whose brokerage firms already ensure funds or securities are in place for settlement. However, understanding the new timeline is crucial for timely decision-making in certain scenarios.
How does T+1 settlement benefit investors?
Shorter settlement cycles can increase the efficiency and security of securities trading, potentially reduce credit and operational risks, and offer greater convenience for investors who need to settle trades more quickly for specific investment strategies or tax planning purposes.
How does T+1 settlement affect ex-dividend dates?
As a result of T+1 settlement, Ex-dividend dates related to dividends, distributions, and other corporate actions are to occur on the business day immediately prior to the record date, as opposed to the current two business days before the record date.
Are Margin Call payment periods affected by T+1?
Regulation T defines a ‘payment period’ as the number of business days in the standard securities settlement cycle. Under T+1, the payment period will be shortened from T+4 to T+3.
Will T+1 affect Reg SHO Buy-ins?
The time frame is changed from T+3 to T+2.