The evolution of transaction settlement: Moving to T+1

In the world of finance, the process through which securities are bought, sold, and officially transferred between parties is known as settlement. In recent years , the standard settlement period for most securities, including stocks, bonds, and exchange-traded funds (ETFs), has been T+2, meaning transactions are completed two business days after the trade is executed. However, a significant shift is on the horizon with the move to a T+1 settlement cycle on May 27 and 28, 2024, which will fundamentally change how investors and markets operate.

In this article, we're breaking down everything you need to know about this change:

• Why are settlement cycles important?
• Implications of T+1 for investors
• Exceptions
• How to determine the settlement cycle of your investments

Why are settlement cycles important?

Settlement cycles play a crucial role in the liquidity and efficiency of financial markets. The current standard, T+2, requires that payments and deliveries for trades be finalized two business days after the order is executed.

The transition to a T+1 settlement cycle will significantly enhance the efficiency and speed at which transactions occur, which is a big win for investors. Under this new rule, investors will see capital and securities exchanged more rapidly, enabling a higher degree of liquidity and reducing the risks associated with holding positions over an extended settlement period.

What does this mean for you?

While the broader securities industry will undergo extensive adjustments to align with T+1, keeping informed on what is happening can help you ensure you're taking the most advantage of this change. The shift to T+1 means we can all look forward to getting our hands on our money and making moves with our investments faster. But, it's also an opportunity to review and possibly tweak our strategies to stay in sync with this quicker settlement timeline.

We encourage you to utilize the resources we share later in this article to understand the specific impacts on your holdings and adjust any investment strategies accordingly.

Exceptions to the rule: mutual funds and other investment funds

The move to T+1 represents a change across the large majority of the securities industry, but it's important to note that certain investment vehicles are exempt from this mandate. Specifically, companies that issue mutual funds and other investment funds, excluding ETFs, are not required to transition from T+2 to T+1. Instead, these fund issuers have the discretion to decide if and when to shift any or all of their funds to a next-day settlement basis.

How to check the settlement cycle of your funds

You can check the settlement cycle of your specific funds by visiting Fundserv's Fund Profiles page and following these steps:

1. Visit Fundserv’s Fund Profiles page (https://www.fundserv.com/industry-resources/fund-profiles/)
2. Choose how you would like to search for your fund (Fund ID #, Fund Name, Settlement (Cycle), etc.)
3. Scroll down below the choice option boxes and partial list until you see a scroll bar. Scroll right until you see a column for Settlement cycle.
4. If you'd like a more detailed analysis, you can also export from the Fund Profiles to CSV/Excel (identify yourself as a non-Fundserv member, enter contact details when prompted, and, as purpose of use, choose Other; save results as an Excel file) as desired.

These resources are designed to offer up-to-date information on which funds will operate on a T+1 basis following the rule change, ensuring investors can make informed decisions.

With this T+1 shift, we're stepping into a future where your investing can be more dynamic and even more exciting. By staying informed and ready to adapt, we can all make this transition smoothly and take control of our financial future. If you have any questions about T+1 and how it may affect your investments, you can check out our FAQs on the topic, or contact our Service Centre.