Wall Street's faster trade settlement sees some temporary bumps
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[May 30, 2024] By Davide Barbuscia and Carolina Mandl
NEW YORK (Reuters) -The transition to faster trade settlements for
securities in the U.S. has faced processing bumps although the
switch has mainly been smooth, market participants said on
Wednesday.
On Tuesday, U.S. trading of equities, corporate and municipal bonds
and other securities moved to a one-day settlement cycle (T+1) from
two days (T+2), to comply with a rule change adopted in February by
the U.S. Securities and Exchange Commission.
Canada, Mexico, Argentina and Jamaica implemented T+1 on Monday.
The shift in the world's largest financial market is aimed at
making market infrastructure more resilient, but investors and
regulators braced for increased trade failures and other hiccups.
The Securities Industry and Financial Markets Association (Sifma)
said it was optimistic about the progress of the transition. "All
T+1 implementation activities have been completed and appear to be
operating normally," the Investment Company Institute said in a
statement.
"The first day of trading under T+1 settlement went smoothly," said
William Coleman, head of U.S. ETF Capital Markets at Vanguard.
"While there may be some increased risk of failed trades as firms
continue to adjust to the new settlement regime, we expect most
trades will settle successfully today."
![](http://archives.lincolndailynews.com/2024/May/30/images/ads/current/humanesociety_sda022411.png)
An early indication came from data on trade affirmations, in which
participants verify and agree on the trade details. The Depository
Trust and Clearing Corporation said that as of Tuesday evening the
rate of total trades affirmed was 92.76%, higher than Friday's
89.59%.
The higher the affirmation rate, the more likely trades are to be
successfully settled.
Settlement is the process of transferring securities or funds from
one party to another after a trade agreement. It follows clearing
and is handled by the Depository Trust Company, a subsidiary of DTCC.
In Mexico, an executive from the main stock exchange BMV said the
move would help boost transaction volumes.
"The fact that the trade settlement period has been shortened by
one day reduces the exposure of portfolios and generates collateral
resources that brokerage firms can use," BMV executive Jiyouji Ueda
said.
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![](../images/053024PIX/busine62.jpg)
Traders work on the trading floor at the New York Stock Exchange
(NYSE) in New York City, U.S., April 5, 2024. REUTERS/Andrew
Kelly/File Photo
![](http://archives.lincolndailynews.com/2024/May/30/images/ads/current/graue_lda_preowned_051324.jpg) Stephane Ritz, a managing principal at
consultancy Capco, cited delays overnight in processing and
preparing some trades for settlement at the National Securities
Clearing Corporation, a DTCC subsidiary. The issue has been
addressed in a "very timely fashion" and orders have been caught up
with, Ritz added.
The delays caused a lot of
apprehension, said John Oleon, managing director at prime broker
Clear Street. "Now that we've had that issue last night people are
going to be sitting on the edge of their seat."
DTCC cited some processing delays overnight which have been
resolved. "We are processing transactions normally," a spokesperson
said in a statement.
Wednesday was the first big test for Wall Street as trades executed
Friday, when T+2 was still in place, and trades from Tuesday, the
first day of T+1, were being settled, which was expected to lead to
a rise in volume.
Market participants expect more trade failures as the industry
adjusts to the faster cycle. Research firm ValueExchange said on
average market participants expect the fail rate to increase to 4.1%
after T+1 implementation, from 2.9%.
In Canada, T+1 changes were implemented successfully and are
functioning as expected, despite some isolated delays, which were
addressed, a spokesperson for TMX, owner of the Canadian Depository
for Securities, said in an email.
"In an era where everything is marked by immediacy, it no longer
made much sense to continue with settlement mechanisms from the last
century," said Alejandro Felix from Mexico's main association of
stock exchange entities.
(Reporting by Carolina Mandl and Davide Barbuscia, in New York; and
additional reporting by Fergal Smith, in Toronto and Lewis Krauskopf,
Noe Torres in Mexico City, Editing by Rod Nickel, Megan Davies,
William Maclean, Deepa Babington and Richard Chang)
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