T+2

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T+2 is short for "trade day plus 2 days, meaning the settlement date for a securities transaction is set at two days after the trade date.[1] Breaking it down, the T stands for transaction date, or the day on which a transaction takes place. A number such as 1, 2 or 3 denotes how many days after the transaction date the settlement or the transfer of money and security ownership takes place.[2]

In the United States, equity and bond markets are on a T+3 settlement cycle.

European Central Securities Depositories Regulation

In 2012, the European Commission proposed its Central Securities Depositories Regulation (CSDR) to harmonize settlements across jurisdictions.[3] The regulation is expected to take effect in 2015. By 2016, CSDs will connect to the European Central Bank's Target2-Securities platform, which will be based on T+2 settlement.[4]

Shortening the Settlement Cycle in the U.S.

In 1995, as automation and other improvements in the settlement and clearing process, the U.S. equity and bond markets moved the trade settlement date from five days after the trade (T+5) to a date of three days after a trade occurred (T+3). By 2000, the securities industry (led by SIFMA predecessor, the Securities Industry Association) began the planning process for a transition to T+1. Although the transition was put on hold, the industry continued to improve in many of the areas identified as critical in the transition to a shorter settlement date.

After the financial crises of 2008-09, global regulators began to push for higher standards in risk management, including the consideration of a shorter settlement cycle. In 2009, the European Commission made the decision to transition to a T+2 cycle.

In October 2012, Boston Consulting Group (BCG) released the findings of a study, commissioned by the Depository Trust & Clearing Corporation (DTCC), with the guidance of the Securities Industry and Financial Markets Association (SIFMA), which highlighted the costs and benefits of shortening the settlement cycle for securities transactions in the U.S.[5]

In April 2014, DTCC published a white paper advocating the move to T+2, saying such a move would "create greater certainty, safety and soundness in the capital markets."[6]

For more information, visit the related page in MarketsReformWiki.

Other International Efforts

As of 2014, a number of developed and emerging markets already operate on T+2:

  • Hong Kong,
  • India,
  • Taiwan,
  • Korea,
  • Germany,
  • Turkey,
  • Bulgaria,
  • Russia,
  • Jordan,
  • Egypt,
  • Chile and
  • Venezuela

Australia is exploring the adoption of T+2 for cash equities and, according to a February 2014 consultation by ASX, could implement T+2 in 2016.[7]

References

  1. Settling Securities Transactions, T+3. U.S. Securities Exchange Commission.
  2. Glossary. CME.
  3. Shorter securities settlements cycles to be introduced in Europe. Reuters.
  4. Three Euroclear CSDs adopt T+2 settlement cycle. The Trade News.
  5. Boston Consulting Group Completes Study of Potential Impacts of Accelerating Settlement for U.S. Equity Trades. DTCC.
  6. DTCC Partners with the Industry to Implement T+2 in the U.S.. DTCC.
  7. Shortening the Settlement Cycle in Australia: Transitioning to T+2 for Cash Equities. ASX.