Wall Street says shift to faster trade settlement smooth so far (updated)

TMX

29/05/2024 15:31

(Adds DTCC affirmation rate, comments)
    By Carolina Mandl and Davide Barbuscia
       NEW YORK, May 29 (Reuters) - The Securities Industry and
Financial Markets Association (Sifma) said on Wednesday the
transition to faster trade settlement was going smoothly, with
some early numbers and market participants pointing to a
well-ordered transition so far.
    On Tuesday, U.S. trading of equities, corporate and
municipal bonds and other securities moved to a one-day
securities settlement cycle (T+1) from two days (T+2), to comply
with a rule change adopted last February by the U.S. Securities
and Exchange Commission.
    "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."
    An early indication came from data on trade affirmations -
or when trade participants verify and agree on the trade
details. The DTCC said that as of Tuesday evening the rate of
total trades being affirmed was 92.76%, higher than Friday's
89.59%.
    The higher the affirmation rate is, 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 has been agreed. 
It takes place after clearing and is handled by the Depository
Trust Company, a subsidiary of the Depository Trust and Clearing
Corporation.
    The shift in the world's largest financial market is aimed
at making market infrastructure more resilient, but it has put
investors and regulators on alert for increased trade failures
and other hiccups.
    Wall Street is undergoing its first big test on Wednesday,
when trades executed last Friday, when T+2 was still in place,
and trades from Tuesday, the first day of T+1, will be settled.
This is expected to lead to a rise in volume.
    Market participants expect to see an increase in trade
failure as the industry adjusts to the faster settlement 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%.
    The U.S. follows Canada, Mexico, Argentina and Jamaica,
which implemented T+1 on Monday.
    In Canada, T+1 changes were implemented successfully and are
functioning as expected, despite some isolated delays, which
were addressed, a spokesperson for TMX, the owner of Canada's
national securities depository, the Canadian Depository for
Securities, said in an e-mail. 
    

 (Reporting by Carolina Mandl and Davide Barbuscia, in New York;
and additional reporting by Fergal Smith, in Toronto, Editing by
Rod Nickel, Megan Davies, William Maclean)
 ((carolina.mandl@thomsonreuters.com; +1 (917) 891-4931;))