T+1 Frequently Asked Questions (FAQs) / Foire aux questions (FAQ) T+1

Below you will find the questions and answers developed for the move from a T+2 to a T+1 securities settlement cycle, with more recent FAQs added at the top.  Additionally, a good number of the CCMA’s T+3-to-T+2 FAQs may also be useful at some point.

Please also check out U.S. T+1 FAQs including the following:

Cliquez ici pour accéder au Foire aux questions (FAQ).

Les questions et réponses formulées en vue du passage éventuel d’un cycle de règlement des opérations
sur titres de T+2 à T+1 sont présentées ici, les questions les plus récentes figurant en haut de page. Un
bon nombre des points de la FAQ T+3 à T+2 de l’ACMC seront également utiles occasionnellement.
Consultez également les FAQ T+1 américaines.

17. When will CDS release a T+1 white paper, impact assessment, roadmap, and business requirements document? (added September 7, 2022)

There will not be a CDS white paper, impact assessment, or roadmap because Canadian market players have agreed, through the CCMA, that the Canadian capital markets industry must move to T+1 for competitive reasons, or face the negative consequences of arbitrage, additional cost, and greater risk that a longer standard settlement cycle than the U.S. would pose.

To move to a standard settlement cycle of T+1 on the same date as the U.S., CDS worked with the CCMA to arrive at a revised CDS Schedule (approved by the CCMA T+1 Steering Committee on June 28, 2022) and CDS and exchanges have since committed to:

  • Receiving batch files on an hourly basis, starting at 11:00 a.m. ET (CDS is meeting quarterly with the TMX and other exchanges/marketplaces in this regard)
  • Generating/delivering exchange-trade messages and files back to participants and their service bureaus on an hourly basis intraday
  • Receiving reconciliation files by 19:30 on T.

CDS will issue a requirements document once all material CDS-related issues in the CCMA Operations Working Group (OWG) Issue Log have been addressed.  For this to happen as rapidly as possible, industry participants must drill down now into trade, allocation, confirmation, and settlement systems and processes to identify, discuss, and address at OWG meetings what prevents trades from being confirmed by the end of trade date.  The CCMA would like to see the related issue logs closed in Q3/Q4 2022.  CDS also expects to issue a requirements document and test plan in Q4 2022.

16. Will the settlement cycle for purchases and redemptions of mutual fund units/shares shorten from T+2 to T+1 in 2024? (added September 7, 2022)

Will the settlement cycle for purchases and redemptions of mutual fund units/shares shorten from T+2 to T+1 in 2024?

Canadian and U.S. mutual funds have been on different standard settlement cycles for purchases and redemptions of their units/shares for a while, with apparently most U.S. funds settling purchases and redemptions on a T+1 cycle for many years.  Most Canadian funds, on the other hand, have settled for decades on the same schedule (currently T+2) as Canadian debt, equity, and exchange-traded products, against which mutual fund investments may compete. The difference between Canadian and U.S. fund settlement cycles has not been, and is not expected to be an issue, because unlike in the case of secondary market trading of debt, equity and exchange-traded products, and particularly securities interlisted on Canadian and U.S. exchanges, Canadian and American mutual funds do not compete.  Essentially, Canadian mutual funds are not an investment option in the U.S., nor are U.S. mutual funds an option in Canada. One key issue for the Canadian mutual fund industry in the case of shortening the purchase and redemption settlement cycle to T+1 is that many foreign jurisdictions other than the U.S. are not currently proposing to also move to a T+1 settlement cycle. The settlement cycles of certain types of portfolio securities may be problematic for Canadian funds that hold significant amounts of the types of securities/instruments that will remain at a T+2 or greater settlement cycle (e.g., T+3 in some foreign jurisdictions). With U.S. mutual fund market participants being so much larger than that in Canada, Canadian mutual fund industry representatives have been told that these timing differences are not as problematic for them.

15. Will Canada issue a T+1 Playbook like the U.S.? (added September 7, 2022)

 The CCMA is not issuing an equivalent to the U.S.’s T+1 Playbook for several reasons:

  • Such a tool is needed in the U.S. because of the proportionally larger volume of capital markets participants, much broader range of service providers and vendors, and greater complexity of some systems and markets, as well as the lead that the U.S. is taking in the move to T+1.
  • It is not required in Canada (nor was a Canadian version of the U.S. T+2 Playbook published for the T+2 move) because the Canadian marketplace is quite similar in many ways to the U.S. capital markets and, due to Canada’s comparatively smaller capital markets size, it cannot reasonably go in a direction that differs materially from that of the U.S. The well-designed U.S. T+1 Playbook is therefore useful not just for American industry participants but also for Canadian ones.
  • Finally, Canada’s capital markets are more concentrated, with only a handful of large infrastructure providers, custodians, service bureaus, and vendors – many of which also operate in the States – linking all parties in the end-to-end processing chain, and significantly reducing delays and simplifying co-ordination.

We encourage CCMA members to review the U.S. T+1 Playbook and use its workbooks.  The CCMA will, as for T+2, provide complementary support where needed:  a T+1 schedule that dovetails with the U.S.’s, Canadian checklists and Canada-specific frequently-asked questions (FAQs), as well as other tools.

14. Will there be changes in the calculation of the Canadian ex-date for corporate action events in a T+1 environment? (added September 7, 2022)

Corporate actions relative to exchange-traded securities trade with or without any associated income distribution depending on the corporate action’s record date. The security trades without a dividend on the ex date – the trading day before the date of record in today’s T+2 environment.  In a T+1 environment, the ex and record dates will be the same – T+1 – in the U.S. and Canada.

In some cases, an exchange may set a later ex-date, for example, due to challenges with stock or large cash dividends, and the securities will trade with a ‘due bill.’  The U.S. has indicated that for trades with due bills, the ex date will be the same as the due bill redemption date, and Canada will adopt the same practice at the time of T+1 transition.

Also impacted are ‘protect’ or letter-of-guarantee periods for voluntary corporate action event (e.g., rights subscription or tender offer) expiries, which usually align with the standard settlement structure (currently T+2) – investors can purchase securities even on the offer’s expiration date, with the protect feature “covered” once the securities settle in two days’ time.  In a T+1 settlement cycle, the cover/protect or letter-of-guarantee period will be the expiration date plus one (1) trading day.

There will be a CDS external procedure change requiring regulatory non-disapproval, but no system or rule changes required for CDS.

Finally, to reduce risk, the industry is requesting marketplaces to recommend that issuers try to avoid setting corporate-action-related dates during the days chosen to both start trading on a T+1 basis and the following day (T+1), which is a ‘double settlement’ date (trades the previous day due to be settled on T+1, as well as those from two business days prior settling on the ‘old’ T+2 basis).

13. Will Canada’s buy-in process (the requirement to acquire securities to fulfill an investor’s purchase order if securities are not on hand or returned from securities loans) change with the move to T+1? (added September 7, 2022)

CDS will align Canadian buy-in processes with the changes being implemented in the U.S. as follows:

Buy-in process Current: 

Buy-in intent can be submitted on T+2 and the intent will be executed on:

Future buy-in process:

Buy-in intent can be submitted on T+1 and the intent will be executed on:

From prior to 4:00-4:45 PM EST Notification Date plus 2 (N+2) The intent will be executed on Notification Date plus 1 (N+1)
From 4:45 PM –7:30 PM EST Notification Date plus 3 (N+3) The intent will be executed on Notification Date plus 2 (N+2)

12. Will Canada be ready for T+1 on the same schedule as the U.S.? (added September 7, 2022)

Yes. First, Canadian market participants have effectively managed the reduction in the North-American settlement cycle in the past.  Second, at the two-years-to-T+2 implementation mark, the CCMA had only just hired T+2 project resources, and was able to successfully migrate to T+2 on September 5, 2017 with the U.S., whereas the CCMA started working on the T+1 project three years before scheduled T+1 transition.  At the two-year mark for T+1 – although more challenging than the move to T+2 – the CCMA and its members already have agreed on a T+1 Asset List, achieved consensus on CDS Scheduler changes, and made material progress on operations and legal/regulatory issue logs of issues.  As well, many of those who worked on the T+2 project are again working on T+1, reducing the learning curve.  Lastly, without any systems or operational changes at all, 90% of trades already could settle without difficulty at 4:00 p.m. ET.  Whatever the 2024 migration date the U.S. Securities and Exchange Commission (SEC) chooses for T+1, Canadian capital markets will be ready to test and transition to the shorter cycle with American counterparts.

11. What is the process and timing currently for mutual fund pricing error corrections? (added May 23, 2022)

If there is a pricing error that impacts trades that have already been reported in the Contract File (FS), fund companies have several options. They can issue new price files, reverse and reprocess the transactions with the correct price, or compensate accounts or deduct units.

10. Are there consequences or follow-up initiated if standard Fundserv timelines are not met? (added May 23, 2022)

Late prices may delay the start of the overnight batch run. if it is extremely late, it may cause a fund company to miss the 6 a.m. ET Contract File (FS) cut-off. This could mean penalties and negative feedback from dealers that won’t receive the file in time to match pending orders. If this occurs, advisors will not see the trades contracted in investor accounts.

 

9. Are mutual fund prices created more than once a day and, if, so under what conditions? (added May 23, 2022)

No, prices are created only once a day.

 

8. When do fund companies strike mutual fund prices (is there a deadline)? (added May 23, 2022)

Prices are normally struck by 5:30 pm, but it depends on the complexity of the portfolio. There isn’t a formal deadline, but they must be calculated before the Fundserv nightly batch run starts.

7. The U.S. securities regulator (Securities and Exchange Commission or SEC) issued a formal proposal on February 10, 2022, which, if adopted, would require moving to a standard T+1 settlement cycle by March 31, 2024, although the DTCC/SIFMA/ICI white paper said the first half of 2024. What is the Canadian marketplace going to do? (added February 17, 2022)

Canadian market participants have committed to moving to T+1 on the same day as U.S. counterparts.  Whatever the final date chosen, Canadian firms should target completing system and operational changes, and be well along in industrywide testing, by December 31, 2023.  We are continuing to work with industry members and our American colleagues to confirm an integrated timeline, which will be posted once approved.

6. What is T+1? (added December 1, 2021)

T+1 (and T+0, T+2, and T+3) refers to the number of days (as in a one-day gap) between trade execution (or T) and the related trade settlement (defined as the exchange of the buyer’s payment for the trade to the seller in conjunction with the transfer of these securities from the seller to the buyer.

5. How can I know if my firm is involved or how can I get involved myself? (added December 1, 2021)

Please visit www.ccma-acmc.ca or e-mail Keith Evans at kevans@ccma-acmc.ca.

4. Do the settlement cycles in the U.S. and Canada need to remain harmonized and, if so, why? (added December 1, 2021)

They don’t need to be, but should be harmonized to reduce risk, complexity and ultimately cost. A CCMA_commissioned study was completed in 1999 by Charles River Associates that indicated the Canadian capital markets should change the settlement cycle at the same time as the U.S. – neither before, nor after. About 40% of trades on Canadian stock exchanges are inter-listed securities (that is, a single security is listed on both Canadian and American exchanges) and Canada-U.S. cross-border transactions make up roughly 25% of the millions of trades processed annually through CDS. Different settlement dates would cause confusion for investors and increase the risk of errors with the associated cost of manual corrections.

3. Why do securities have different settlement cycles, and why aren’t they the same day just as I can withdraw money from my account and it is processed the same day? (added December 1, 2021)

The automation of both cash and securities markets advanced considerably during the 1980s, 1990s, and first decade of this century. However, the transfer of cash still remains much more straightforward than is the case with securities. A cash transfer requires agreement on and transfer of usually relatively small amounts on a particular date. In the case of securities, there are many more details to agree upon. For example, investment managers have 18 mandatory data elements per transaction to send to the broker-dealer and custodian, if allocating at the individual client level — and the amounts at risk can be considerably greater. Also, some investments involve on and offshore structures, where the offshore part will take longer to transact or involve illiquid securities where it may take extra days to sell an asset at a reasonable price.

2. What securities will be affected by the shortened cycle? (added December 1, 2021)

In general, the main securities that are expected to be impacted are: all stocks or equities, all corporate bonds, and long-term government bonds with a remaining term to maturity of more than three years (TBC), as well as investment funds, including conventional mutual funds, exchange-traded funds or ETFs and hedge funds, as well as segregated funds and principle-protected notes.

1. How could this affect me as an investor? (added December 1, 2021)

Many investors might experience no change at all, if they buy and sell using securities and cash they already have in their accounts. If they hold securities as certificates in physical form, however, investors have to deliver them to their dealer beforehand. If they are not selling securities already in their accounts or don’t have enough cash, they will have to deposit cash to cover the transaction. Speak to your dealer or custodian to learn more details about the effect of any changes.

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