US Stock Market Transitions to One-Day Settlement Cycle, Facing Initial Processing Delays

US Stock Market Transitions to One-Day Settlement Cycle, Facing Initial Processing Delays

The Transition to T+1 Settlement in the US

The transition to faster trade settlements for securities in the US has been met with mixed reactions, with some market participants reporting processing bumps while others remain optimistic.

On Tuesday, US trading of equities, corporate and municipal bonds, and other securities officially moved to a one-day settlement cycle (T+1) from two days (T+2), complying with a rule change adopted in February by the US Securities and Exchange Commission.

While the Securities Industry and Financial Markets Association (Sifma) expressed optimism about the progress of the transition, some participants reported delays overnight in processing and preparing some trades for settlement at the National Securities Clearing Corporation (NSCC), a subsidiary of the Depository Trust and Clearing Corporation (DTCC). These delays caused some apprehension among market participants, who are now closely monitoring the situation.

Despite these initial hiccups, the Depository Trust and Clearing Corporation (DTCC) confirmed that the processing delays have been resolved and transactions are now being processed normally.

The transition to T+1 is expected to lead to an increase in trade volume, as the shortened settlement period reduces portfolio exposure and generates collateral resources for brokerage firms. However, market participants also anticipate an increase in trade failures as the industry adjusts to the faster cycle. Research firm ValueExchange estimates that the fail rate could increase to 4.1% after T+1 implementation, compared to 2.9% previously.

Overall, the transition to T+1 settlement in the US is still in its early stages, and it remains to be seen how the market will fully adapt to the faster cycle. While some initial challenges have emerged, market participants remain hopeful that the transition will ultimately be successful.