The standard settlement cycle for certain securities in Canada and the United States will be shortened from trade date plus two business days (“T+2”) to trade date plus one business day (“T+1”) in May 2024. A shorter settlement cycle is expected to reduce credit and counterparty risk, lower collateral costs, increase market liquidity and provide faster access to funding.

Key Dates

Canada and the United States are transitioning to T+1 over the May 25/26, 2024 weekend. The last date securities will trade on the T+2 cycle in both Canada and the United States will be May 24, 2024, however, the first trading day on a T+1 basis will be different as a result of Memorial Day in the United States. While the Canadian and U.S. markets will be out of sync for one day, Memorial Day has historically been a light trading day in Canada and this will provide Canadian firms with more time to test their systems.

The T+1 transition timeline is as follows:

Canada and the United States will be on identical trading and settlement cycles commencing on Thursday, May 30, 2024.

Issuers are encouraged to avoid creating new events (i.e. corporate actions that involve the calculation and payment of cash and/or securities to shareholders) that settle on either the first date set for T+1 trading or the double settlement date.

Rule and Policy Amendments

The Canadian Securities Administrators (“CSA”) have adopted amendments to National Instrument 24-101 Institutional Trade Matching and Settlement and changes to the related companion policy (the “CSA Amendments”) that will come into force on May 27, 2024. As discussed in a prior post, the purpose of the CSA Amendments is to: (i) address the transition to T+1; and (ii) permanently repeal the exception reporting requirements in respect of unmatched trades in Part 4 of the Instrument.

The CSA have also proposed amendments to National Instrument 81-102 Investment Funds to facilitate voluntary decisions by mutual funds to shorten the settlement cycle for purchases and redemptions of their securities to T+1.

Similarly, the Toronto Stock Exchange has adopted housekeeping amendments to its rules and the Canadian Investment Regulatory Organization has published amendments to the Universal Market Integrity Rules and Investment Dealer and Partially Consolidated Rules to facilitate the transition to T+1.

How to Prepare?

Industry participants must shorten and update their internal processes and systems to adapt to a shorter settlement cycle.

The Canadian Capital Markets Association (“CCMA”) is coordinating the Canadian financial market’s move to the T+1 settlement cycle. The CCMA has published a list of securities that are moving to T+1 settlement along with a number of resources including T+1 Frequently Asked Questions on its website.

In March 2024, the Depository Trust and Clearing Corporation (“DTCC”) issued a T+1 Conversion Guide that outlines the steps DTCC will take during the conversion weekend.

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