The adoption of the T+1 settlement cycle in the US, Canada, Mexico, and Latin America has been largely successful, with affirmation rates significantly improving and a notable reduction in clearing fund requirements. However, financial institutions must continue refining processes as regulators begin assessing compliance with the new SEC rules.

Four months after the T+1 settlement adoption go-live date in the US, Canada, Mexico, and other LATAM countries, most observers agree that the T+1 implementation went smoothly thanks to unprecedented collaboration across the industry to ensure systems were updated, operational processes were adjusted, and compliance with new regulations was achieved. 

When it comes to success, the numbers speak for themselves:  

Affirmations:

• Nearly 95% of transactions meet the affirmation criteria—by the DTC 9:00 PM ET cutoff on the trade date—which marks a notable improvement from the 73% affirmation rate recorded at the end of January 2024. ¹

Clearing fund:

• Prior three-month average value: The NSCC Clearing Fund fell by US$3.0 billion to $9.8 billion from $12.8 billion in a T+2 environment—a reduction of 23%. 
• Prior month average value: The NSCC Clearing Fund fell by $2.4 billion to $9.8 billion from $12.2 billion in a T+2 environment—a reduction of 20%. ¹

Fail Rates:

• The average CNS fails rate for July 2024 was 2.12%, consistent with T+2 settlement rates.
  
• Similarly, the average DTC non-CNS fails rate was 3.31%. Again, consistent with T+2 settlement averages. ¹
  
  

NO REST FOR REGULATION AND RULES

T+1 transformation programs are still ongoing as firms seek further efficiencies and regulators continue to monitor metrics after the transition. These metrics include fails at the clearing house, creations and redemptions, same day allocations, pattern day trading rules, stock borrowing concerns, and FX settlement for foreign traders.

In addition, on August 6, 2024, the US Securities and Exchange Commission (SEC) announced that it will begin detailed examinations of banks to assess T+1 compliance. Banks are expected to provide information on their policies, procedures and record keeping processes to validate compliance with the newly established SEC regulatory rules. 

In other words, the pressure is still on for financial institutions to align their policies, procedures, and record-keeping processes with the recent transition of the T+1 trade settlement cycle.

To ease this burden, financial institutions should consider partnering with experts who have extensive T+1 subject matter expertise and have supported financial institutions as they prepared for the transition. Such knowledge includes identifying and implementing technical changes, adjusting timing of operational processes, and updating policies and procedures. This will help ensure that they are prepared for upcoming SEC audits. 

Thanks our experience guiding firms smoothly to T+1 compliance, Capco can help ensure that your firm is prepared for audits and exams. This includes periodic independent reviews to assess your on-going compliance with every T+1 established rule. To learn more about how your firm can ensure compliance with upcoming SEC T+1 Compliance exams, contact us using the form below.


References
¹ https://www.sifma.org/wp-content/uploads/2024/09/T1-After-Action-Report-FINAL-SIFMA-ICI-DTCC.pdf