Tony Yuan（Head of Products and Strategy at AimStar Capital）
Published May 28, 2024, 1:50 PM EST. 4 min read.
Since 2017, the Canadian and U.S. marketplaces have been operating on a T+2 settlement period, meaning that the Settlement date for most securities is typically two business days after Trade date.
As of Monday, May 27, 2024, every securities firm in Canada will be moving to a shortened settlement cycle of T+1. The United States will make the same move a day later, on Tuesday, May 28, 2024, due to their Memorial Day holiday.
As a fully registered securities investment firm in Canada, AimStar has worked with clearing institutions to prepare for the T+1 transition for our clients’ investment assets. This change will make your investments more efficient and create a quicker link between securities and cash. From now on, clients who sell securities will receive payment the next day.
Q: What is “T+1” settlement?
A: When buying or selling stocks, bonds, or funds, there are two dates to be aware of: the trade date (T) and the settlement date. Certain activities must occur before the participating parties officially exchange money and stocks. The time between the trade and the official ownership transfer is referred to as the settlement cycle. During this time, institutions undergo matching, confirmation, reconciliation, and cancel & correct activities to settle transactions. The settlement cycle is regulated at an industry level to ensure ownership is transferred no later than the deadline.
Currently, in the US and Canada and most other markets, most products must settle within two days after trade date, referred to T+2. After May 27th, 2024, the settlement cycle in US and Canada will be shortened by one day: most products will now need to settle on T+1.
Q: What are the advantages of the “T+1” rule?
A: The transition to a shortened settlement cycle is expected to bring numerous benefits for investors and market participants, including reduced settlement risk, improved capital utilization, and related efficiencies.
Q: What changes will it bring for investment clients?
A: In the shortened T+1 settlement cycle, clients will receive faster payment following the sale of a security. Additionally, clients must provide funds more promptly following the purchase of a security. Please note that debit interest will begin to auto-accrue in the client’s account if their purchase has not been paid for.
Q: Why is Canada Aligning its move to T+1 with the US?
A: Canadian capital markets will convert to the T+1 shortened settlement cycle on Monday, May 27th, 2024, to align with US markets given the importance of our cross-border trading activity.
US capital markets will convert to the shortened settlement cycle on Tuesday, May 28th, 2024, as Monday is a statutory holiday, Memorial Day.
All Canadian securities regulators indicated their support to harmonize with the US capital markets to reduce risk, complexity, and cost. Roughly 40% of trades on Canadian stock exchanges represent inter- listed securities that are listed on both Canadian and American exchanges. Different settlement dates in Canada and the US would cause confusion for investors and negatively affect markets due to the increased risk of errors along with the cost of related manual corrections.
Q: Which products are in scope?
A: The securities impacted are:
• Stocks/Equities
• Corporate Bonds
• Convertible Debentures
• Provincial and municipal government bonds
• Federal government bonds with a remaining term to maturity of 3 years or greater
• Exchanged-traded Funds (ETFs)
Fund Holdings – awaiting confirmation from the mutual funds industry as some may remain T+2 or longer:
• Mutual Funds
• Hedge Funds
• Segregated Funds
• Structured Products
Q: Will Mutual Funds transition to the T+1 settlement cycle?
A: Mutual fund issuing institutions have a choice to transition their funds to a T+1 settlement period or remain on their current cycles. Mutual Fund settlement periods are already inconsistent under the current T+2 landscape. The industry anticipates this to continue, with some issuers offering their funds with one-day, two-day, mixed, and irregular settlement cycles. Advisors are encouraged to pay extra attention to mutual fund settlement cycles to avoid possible debit interest charges due to settlement date misalignment.
All mutual fund and mutual fund companies products approved by AimStar have confirmed they will transition to the T+1 settlement cycle. This will make the buying and selling process more efficient for all clients.
AimStar Capital Group Inc. is an independent full-service investment dealer with the Investment Industry Regulatory Organization of Canada (IIROC), specializing in providing Investment advisory and tailored wealth management services to individual investors, family trusts, and institutional investors. If you have any inquiries regarding personal financial services, investment portfolio adjustments, or private wealth management, please email us at info@aimstar.ca. We are committed to assisting you and ensuring the security of your privacy. Additionally, the AimStar expert team is available to provide one-on-one financial advisory services. We look forward to navigating your financial future together.