Shifting To T+2 Settlement
After the financial crisis of 2008, regulators implemented new strategies to reduce operational risk, including the adoption of a T+2 settlement cycle. Global markets have been phasing in this shortened cycle for the last five years and regulators have set the third quarter of 2017 as the target for a rollout in Canadian markets.
Once national markets are aligned with US and global ones, market participants can expect substantial benefits. The shortened trade settlement cycle will mitigate risk by reducing counterparty exposure and decreasing clearing capital requirements. Investors will also benefit from reduced margin requirements, and confidence in market efficiency and security should improve.
Middle and back office operation processes will require adapting to respond to the shortened settlement cycle. The transaction settlement date will be calculated based on the trade date of the transaction plus the number of settlement days specified for a particular security level.
A number of securities are affected by the new T+2 cycle, including but not limited to:
- Corporate bonds
- Federal, provincial and municipal government bonds with a remaining term to maturity of 3+ years
- Convertible bonds
- Asset-backed securities
- Preferred shares
- Mutual funds
- Exchange-traded funds
- Segregated funds