September 5, 2017 T+2: Ready, Get Set, Switch!

Years in the works, September 5, 2017 marks the target date for an important change in the securities marketplace.  On that day Canada and the U.S. intend to shorten their standard securities settlement cycle. The Canadian Capital Market Association is working to promote investor awareness and prepare Canada to switch.

Modern technology makes trade execution possible in a matter of milliseconds.  But at present for most debt and equities, there’s a three-business day gap between when an investor’s trade order is executed (T) and settled – that is when the buyer’s payment of a trade is exchanged for the securities of the seller.

So in sync with the U.S., Canada will switch-over from the current three days after trade (short-form T+3) to two days or T+2, as most European Union and other countries have already done.

Ever since the global financial crisis of 2008-09, financial regulators have focused on enhancing investor protections.  Within the settlement cycle, risk is measured in terms of time. The shorter the time between trade execution and settlement, the less the risk to the individual investors.  T+2 brings faster exchange of securities for cash; lowering a number of risks for individual investors and the financial markets as a whole.

The types of securities affected by the transition to the T+2 settlement cycle include medium- and long-term government and corporate bonds, preferred and common shares, exchange-traded funds (ETFs) and most mutual funds. Trades in these securities executed on Tuesday, September 5th will be the first to settle in two days’ time, i.e. on Thursday, September 7th.

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