June 20th, 2017

Preparing for the impact of T+2

How the industry is getting ready to switch from T+3 to T+2

One day may not seem like a big deal but, when it comes to trade settlements, it is. In fact, it’s a wide-ranging, highly involved shift that involves markets across the globe. Many regions have already made the switch from T+3 to T+2, and now Canada is, too. Let’s explore what T+2 means and why a one-day change is such an important move to make.

Trade settlement

For the purposes of the investment funds industry, settlement is a business process in which two parties exchange securities for payment to fulfil a contract such as a trade. In Canada today, the norm is T+3, meaning that a trade must be settled three business days (“+3”) after the trade is made (“T”).

Recently, the Canadian Securities Administrators (“CSA”) published its final amendments to National Instrument 24-101 Institutional Trade Matching and Settlement, to support the move to T+2 for long-term equity and debt market trades.

The CSA also released its proposed amendments to National Instrument 81-102 Investment Funds, which would shorten trade settlement for conventional mutual funds by one day.

T+2: A global trend

Markets and regulators in the Asia-Pacific region and Europe have already switched to T+2, and Australia and New Zealand have as well. Their goal, as with many markets, is to make the investing experience as smooth and efficient as possible.

Will there be a day that trades settle immediately? It may be possible one day, given the technological advancements occurring. But, for now, nations across the world are content with T+2.

Why is the CSA supporting the move now?

Getting all markets operating under the same rules (“trade cycle”) is essential to creating a seamless investor experience. Given that Canadians invest in markets across the globe, and investors across the globe invest in Canada, the CSA is moving speedily ahead with its T+2 initiative.

Canada is unrolling T+2 at the same time as the U.S., bringing developed North American markets in line with the world. Early estimates were expecting T+2 to go live in Canada on September 5, 2017. Whether or not that date is met, T+2 is happening and the investment fund industry will be prepared.

For more information about how the investment funds industry operates, register for IFSE’s Canadian Investment Funds Operations Course.