FAQ: Velocity Clearing LLC T+1 Accelerated Settlement

 

1.       What is T+1 Settlement?

The SEC announced on February 15, 2023, that the U.S. would transition to T+1 settlement on May 28, 2024. This change requires that all market participants make necessary operational changes and technological upgrades to settle trades within one day. T+1 Settlement refers to the practice where securities transactions are settled one business day after the trade is executed. This is a shift from the previous T+2 standard, which allowed for two business days.

 

2.       What are the key dates associated with the T+1 Transition?

  • Last T+2 Trade Date: Friday, May 24, 2024.
  • Memorial Day Holiday: Monday, May 27, 2024 (No trading).
  • First T+1 Trade Date: Tuesday, May 28, 2024.
  • Double Settlement Date: Wednesday, May 29, 2024 (Settlements for trades made on May 24 & May 28).
  • Regular T+1 Trading and Settlement: Starts on Thursday, May 30, 2024.

 

3.       What are the expected benefits of moving to T+1 Settlement?

The move to T+1 settlement is expected to enhance market liquidity, reduce counterparty risk, and improve overall market efficiency by speeding up the settlement process and reducing the amount of capital that needs to be held against open trades.

 

4.       What are the new requirements for allocations in T+1 Settlement?

Allocations must be completed on the trade date (T0) by the industry cut-off time of 7:00 p.m. EST.

 

5.       When must confirmations and affirmations be completed on the trade date (T0)?

Confirmations and affirmations for Institutional and Prime Broker transactions must be completed no later than 9:00 p.m. EST on the trade date (T0).

 

6.       What does SEC Rule 15c6-2 entail for trade processing under T+1 Settlement?

SEC Rule 15c6-2 aims to enhance the settlement process by mandating the same-day allocation, confirmation, and affirmation of securities transactions. It requires broker-dealers to either:

  • Enter into written agreements with relevant parties such as investment managers and custodians to guarantee the completion of these processes as swiftly as possible and no later than the end of the trade date; or
  • Establish, maintain, and enforce written policies and procedures designed to ensure these processes are completed expediently and by the end of the trade date.

 

7.       Are there changes to the settlement date cut-off times with the move to T+1?

Yes, the settlement date cut-off times are reduced by one day to accommodate the T+1 settlement cycle. However, the current market cut-off for valued delivery orders will remain at 3:00 p.m. EST even after the transition from T+2 to T+1.

 

8.       Where can I find a comprehensive list of products affected by the T+1 Settlement Transition?

Please consult the DTCC’s T+1 Product List for a comprehensive inventory of affected products. The list details all the securities and transactions that will be subject to the new T+1 settlement timeline. You can access the DTCC’s T+1 Product List by visiting: DTCC T+1 Product List. This document provides detailed information on all products that will transition to a T+1 settlement cycle.

 

9.       How will corporate actions be affected by the transition to T+1 Settlement?

With the transition to T+1 settlement, the Ex-Date will be synchronized with the Record Date for regular-way corporate actions. This change aims to streamline the process and reduce confusion regarding the timing of benefits and obligations related to corporate actions.

 

10.  What does the testing process involve for the transition to T+1 Settlement?

Testing is crucial and must reflect the current business operations of Velocity LLC. It includes scenarios as outlined in the SIFMA playbook and the DTCC’s T+1 Testing Approach: Detailed Testing Framework. These documents provide a structured framework and specific scenarios to help firms prepare for the transition effectively by testing their systems under conditions that mimic the post-T+1 operational environment. This framework offers comprehensive guidance on testing procedures to ensure readiness for T+1 settlement. You can access this document at: DTCC T+1 Detailed Testing Framework.