Welcome to the May edition of "In the Know", Baker McKenzie's leveraged finance newsletter that analyses significant trends and salient legal issues for participants in leveraged finance and high-yield markets around the globe.
The US Securities Settlement is transitioning from a standard settlement cycle of "T+2" (two business days after a trade) to "T+1" (one business day) effective 28 May 2024. In this edition, we look at the historical context and identify the benefits and considerations of the new ruling, such as reduced market and counterparty settlement risk, improved liquidity and alignment with global regulatory standards. We also consider what this ruling means for market participants and the inevitable next step to T+0.
Key Takeaways
Rule Change:
- On 15 February 2023, the SEC announced rule changes that shorten the cycle to T+1, effective 28 May 2024 for most broker-dealer transactions.
Benefits of T+1:
- Reduced market and counterparty settlement risk.
- Improved market liquidity.
- Leveraging advanced technology.
- Global regulatory alignment.
- Cost savings and reduced transaction expenses.
Implementation:
- IT systems are being upgraded to handle the faster settlement cycle.
- Market participants are adjusting regulatory frameworks and compliance requirements.
What’s Next?:
- The next step will be T+0 (immediate settlement) with further technological advances but the timeline remains uncertain.