Canadian securities regulators say they support the move to shortening the standard trade settlement cycle in line with the U.S. markets.
The Canadian Securities Administrators (CSA) published a notice Thursday spelling out its support to moving from three-day trade settlement (T+3) to two-day settlement (T+2). It notes that most of the markets in Europe have already made this move, and the U.S. industry has indicated that it also plans to shorten its settlement cycle, too. A planned date for the U.S. industry to make this transition is expected to be announced this month.
The CSA indicates that the Canadian industry also supports a move to T+2 on the same timetable as the U.S. markets. “Failure to do so would be detrimental to the Canadian capital markets due to the interconnectedness of our markets,” it says. “At the same time, there would appear to be little, or no, benefit to be gained by moving prior to the U.S.”
Additionally, the notice indicates that an Ontario Securities Commission’s (OSC) consultation with the industry reveals a consensus that it will be able to make a smooth transition to T+2 once the date has been set. “No significant stumbling blocks were identified,” it says; adding that the regulators also “strongly support the need for the Canadian industry to migrate to T+2 on the same timetable as the U.S.”
The CSA says that it also supports the need for “a broadly based industry body” to co-ordinate the effort to move to T+2. In the past, the Canadian Capital Markets Association (CCMA) filled this sort of role. However, it was largely decommissioned once new institutional trade matching (ITM) requirements took effect. There’s now a move afoot to revive the CCMA as the industry body to coordinate efforts for the transition to T+2, the CSA reports.
Additionally, the CSA says that it will consider revisions to trade matching rules to facilitate the move. “With the prospect of a T+2 settlement cycle becoming the global standard and being implemented in Canada, we believe that the trade-matching threshold should be revised to better facilitate readiness for T+2 settlement,” it says.
One option is to change the matching target from 90% at noon on T+1 to 95% at midnight on T+1, which the CSA says, “may provide a better proxy for T+2 settlement readiness.”
“We may also explore whether a de minimis provision in the exception reporting requirement – which would relieve market participants with minimal institutional trading activity from filing such reports – is necessary,” it notes.