There is a critical need for the UK to set a date to switch to a T+1 settlement cycle and stick with it, according to US Securities Exchange Commission (SEC) chair Gary Gensler, who has urged decisiveness and even suggested a potential roadmap. 
“We’ve seen the benefits first-hand,” noted Gensler referencing the early success of the shift in the US, in a speech this week at the Accelerated Settlement in the UK conference. “No doubt, there will be some market participants who raise concerns with meeting whatever date you select.
“In the UK, you will have to decide what policy and timing is right for you. I don’t suspect you will follow the timing of Argentina or Jamaica. I’d note, though, that if one looks at the 27 months it took the US from proposal to implementation, your implementation might be June 2026.”
With the US well into its third week of T+1 settlement for equities, corporate bonds, and municipal securities, a change in the UK would align with the US market structure with its treasury markets and the UK’s gilt market, both of which already operate on a T+1 cycle.
Gensler recounted the smooth transition in the US, which took 27 months from the proposal to implementation. He noted that setting and sticking to a firm implementation date was crucial for this success, acknowledging the collective efforts of market participants, clearing houses, and regulators.
“It’s essential to set a firm implementation date and stick to it. This collective action issue ensures market participants allocate resources for software updates and other necessary preparations. Having a set date helps organise system planning and implementation,” he stressed.
The current timeline for the UK appears to include a plan being put in place in 2025 with the implementation of a T+1 settlement cycle in UK occurring no later than 31 December 2027. This, however, is still up for debate and subject to change.
Gensler highlighted the global trend towards shorter settlement cycles, noting that Canada, Mexico, Argentina, and Jamaica have also adopted T+1. “Time is money and time is risk,” he said. “Shortening the clearing and settlement cycle saves money and lowers risk, which increases efficiency, boosts liquidity in the markets, and promotes resiliency during times of stress.
“For everyday investors, this means that if you sell your stock on a Monday, you now get your cash on Tuesday, instead of having to wait until Wednesday,” Gensler explained. “This change is significant for the 58% of American households holding stock, many of whom were previously puzzled by the two-day waiting period,” he added.
Echoing Gensler’s sentiments, Andrew Douglas, who chairs the UK T+1 Taskforce Technical Group, also stressed the importance of setting a firm date for the transition. This collective action issue ensures market participants allocate resources for necessary preparations, such as software updates and system planning.
A collective effort
Looking at the key takeaways, Gensler stressed that the settlement transition requires market collaboration. “Transitioning to T+1 is a team effort involving thousands of market participants, including clearing houses, depositories, custodian banks, broker-dealers, investment advisors, self-regulatory organisations, stock exchanges, service providers, industry groups, trade associations, and regulators. It’s also a global effort.”
He shared that the SEC has engaged with market participants and regulatory counterparts worldwide, including in the Americas (Canada, Mexico, Argentina, Jamaica, and Peru), the UK, Europe, and Asia. This global coordination is crucial because of the interconnected markets, he said.
T+0?
Additionally, Gensler emphasised the importance of same-day or T+0 allocations, confirmations, and affirmations, which are critical for the movement of securities and cash on T+1. “When we proposed the rule in February 2022, only about two-thirds (68%) of transactions were being affirmed on trade day. By 29 May, the day after the transition, T+0 affirmation rates were approximately 95% by 9pm,” Gensler reported.
“International investors may need to adjust their operations to manage foreign exchange risks, potentially moving to T+0 instead of waiting a day after the trade,” he noted, adding that the collective net benefit of lower risks and increased efficiency outweighs these costs.
“Time zones also play a significant role in the transition. The UK might have an advantage because you can learn from our experience, being to the west of you. For us, it was more challenging because we were pioneering the shift. European asset managers moved staff to the US to manage foreign currency risks during the US 4PM to 6PM time zone rather than late at night in Europe.” Gensler said. He pointed out that European asset managers moved staff to the US to manage foreign currency risks during the US time zone, which could be a consideration for the UK.
Mutual funds and ETFs in the US have largely adopted a one-day settlement cycle by business practice, aligning portfolios from treasuries to equities. Gensler highlighted that this change reduces market complexity, particularly in the area of corporate actions, where the ex-dividend date now aligns with the record date.
Gensler reiterated the importance of this transition for the financial system. “Waiting two days to get your cash after selling something is outdated,” he stated. “This transition lowers margin requirements, frees up liquidity for clearing house members, and reduces risk. Although it might seem like a minor change in the market’s infrastructure, it has significant benefits. This requires a team effort for a smooth transition, as we saw in the US and the Americas.”
Points for further discussion
Looking ahead, Gensler outlined three key areas for further discussion. Firstly, he detailed new rules enhancing central clearing in the US Treasury market, scheduled for phased implementation over two years.
These rules enhance customer clearing and broaden transaction scope, making the Treasury market more efficient, competitive, and resilient, he noted. “By March 2025, the separation of house and customer margin must be completed, meaning a clearing house can no longer net customer margin against house margin. By the end of 2025, certain cash transactions must be cleared, and by June 2026, repo and reverse repo transactions must be cleared. These dates are set, and I encourage everyone to start preparing, especially for March 2025.”
He then advocated for regulators and market participants globally to consider shortening the settlement cycle for currency trading. “Currently, currency markets settle in T+2, but if major markets in North America and Asia move to T+1, it could be beneficial. Engaging with central banks and CLS about this possibility is crucial.”
Gensler then moved on to encourage exploration of same-day settlement practices. “Moving affirmations and allocations to the same day and possibly settling transactions into the evening, like in China, could be beneficial. Our money markets, commercial paper, and certificates of deposit already operate on a T+0 basis. China and India are exploring this as well. These are discussions for the future, and you’ll need to decide what’s right for you, considering what’s happening elsewhere, particularly in Europe and the EU.”