Preparing for T+1 Settlement

A: In February 2022, the Securities & Exchange Commission (SEC) proposed shortening the settlement of U.S. securities from two business days after the trade date (T+2) to one business day after the trade date (T+1). In February 2023, the SEC announced their decision to shorten the standard settlement cycle to T+1, with a compliance date of Tuesday, May 28, 2024. The SEC Fact Sheet provides more information on new and amended rules.

Key changes to industry timelines include:

• Allocations and trade files for most U.S securities will need to be submitted on the trade date (T+0) prior to the industry-recommended deadline of 7 p.m. U.S. Eastern.
• Clearing breaks will need to be resolved on the trade date (T+0).
• Trade affirmations will need to be made on the trade date (T+0) prior to the industry-recommended deadline of 9 p.m. U.S. Eastern.

A: The Securities Industry and Financial Markets Association (SIFMA), the Investment Company Institute (ICI), and the Depository Trust & Clearing Corporation (DTCC) are partnering to provide information on “potential impacts, implementation activities, timelines, dependencies, and risk impacts that market participants should consider in order to successfully prepare for the transition to a T+1 Settlement Cycle on May 28, 2024.” Use the links below to access industry-level FAQs and other resources to help you and your clients learn about T+1.

• T+1 Industry FAQs: Frequently asked questions at an industry level maintained by the DTCC.
• Shortening the US Equities Settlement Cycle: DTCC website with links to FAQs, documentation, news, an implementation playbook, a detailed testing framework and other resources for market participants.

A: Products affected by the T+1 shortened settlement cycle include equities, corporate and municipal bonds, unit investment trusts, and financial instruments comprised of various security types. View a detailed list of affected products on the Depository Trust and Clearing Corporation (DTCC) website. 

• Clients will be expected to agree, instruct, and settle cash flows within the T+1 timeframe for new trades on all relevant OTC Equity Derivatives and Swaps on US/CA/MX cash equities, US/CA/MX Custom Baskets, US/CA/MX Indices (together ‘Eligible Swaps’) and Global Indices/Baskets where US/CA/MX are a majority component. All accruals and settlements will be set up as T+1 Settlement for new trades going forward on these products as of the relevant market transition date.

A: The Canadian Capital Markets Association has announced a Canada T+1 start date of Monday, May 27, 2024 for affected products. For more information, review the Canada Depository for Securities’ (CDS) Migration to T+1.

A: Mexico recently announced a T+1 compliance date of Monday, May 27, 2024. Review the announcement from the Contraparte Central de Valores of Mexico.

A: Non-North American clients trading in eligible products will be subject to the changes outlined above. 

A: No. All transactions will be subject to the same rules regardless of the origin of the instructions.

A: We are not aware of any penalty proposals currently for late settlements such as short-term fails or unaffirmed trades missing the Continuous Net Settlement (CNS®) cutoff. Buy-in risk rules will continue to be in effect as usual.

A: We recommend that clients review the industry resources above to best understand how the change will affect them. Some of the challenges raised across the industry include securities lending, Foreign Exchange and cross-border transactions (American Depository Receipts/Ordinaries, Exchange-Traded Funds, global baskets, et al.) Market participants also can register to receive invitations for industry events and discussions on the DTCC T+1 website.

A: We have concluded a thorough impact assessment of all potentially affected business processes and identified the high-level changes required to meet regulatory and industry-imposed operational deadlines and technical requirements necessary for a shortened settlement. Work is now underway to make the necessary changes to bring our processes into compliance and effect a smooth transition to T+1 for our affected clients. 

A: Yes, Bank of America will provided extended hours of operational support and continue to leverage a follow the sun approach where appropriate.  Please contact your dedicated client service representative or sales contact if you have specific concerns.

A: Bank of America’s settlement instructions remain unchanged. We encourage clients to provide us with settlement instructions for allocations at the time of trading, or prior to placing an order, to avoid any delays in Trade Date matching or allocation.

A: Bank of America will require clients to adhere to the T+1 settlement cycle. Exceptions to execute extended settlement transactions (T+2 or greater) maybe requested on an as needed basis and will be subject to approval. Please speak to your trading or sales coverage prior to submitting extended settlement securities transactions. Bank of America will not approve or execute Extended settlement on a continuous or permanent basis.

A: We recommend that all market participants do the following:

• Familiarize yourself with industry timelines, expectations, and considerations outlined on the Shortening the US Equities Settlement Cycle DTCC website.
• Create your own plan to comply with the change.
• Discuss your focus areas or areas of concerns with your dedicated client service representative or sales contact.
• Notify your dedicated client service representative or sales contact if you want to perform testing with Bank of America.

A: We recommend automating settlement processes by adopting available post-trade solution technology to reduce the risk of settlement failure.

A: Bank of America is actively participating in DTCC industry testing.  Review the DTCC T+1 Test Approach: Detailed Testing Framework to learn more about industry testing.