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The T+2 Settlement: What You Need to Know

After the worldwide financial crisis in 2008, members of the industry recognized that there was a need to reduce risk in the market, achieve greater transparency, and improve the efficiency, resulting in a safer market for everyone. After years of research and discussion, it was decided that moving from a T+3 settlement cycle to T+2 would be the best way to achieve these goals. Unlike other market regulations, this was not driven by a government mandate; rather, the initiative grew from the concerns of members in the industry who are committed to improving market conditions.

If you use Lightspeed Trading for low cost stock trading, then you may want to take a moment to familiarize yourself with some of the changes that will take place.

What is the T+2 settlement cycle?

T+2, or “trade date plus two business days,” will condense the amount of time between the time that a trade is executed until the time it is settled. The US currently operates on a T+3 cycle, implemented in 1995, which shortened the cycle from a T+5 settlement.

When will the cycle begin?

The implementation of the T+2 settlement cycle will begin on Tuesday, September 5, 2017. It is imperative for traders and industry members alike to be aware of the change that will occur on this date. It is also noteworthy that Thursday, September 7 will be a “double settlement” day — the last day that trades settle on T+3, and the first that they settle on T+2.

Why was the decision made to switch to T+2?

The switch to T+2 is part of a continued effort to increase market stability. The decision was made after extensive research was conducted which showed that a move to T+2 would reduce the risk for all parties and increase operational efficiency. A number of financial associations, including the Securities Industry and Financial Markets Association (SIFMA), the Investment Company Institute (ICI), the Association of Institutional INVESTORS (AII), and the Association of Global Custodians (AGC) supported this move. Additionally, several international markets have already switched to a T+2 settlement, including most members of the European Union and several major markets in the Asia/Pacific region.

How will the T+2 settlement cycle benefit the market?

The expectation is that the T+2 settlement cycle will begin to provide benefits to the market immediately. Counterparty risk should decrease in conjunction with a decrease in margin requirements for National Securities Clearing Corporation’s (NSCC) members. At the same time, the pro-cyclical margin and liquidity demands should also be reduced, particularly during periods of market volatility. The migration to T+2 will also help to synchronize trading in the US with other major markets around the world. To learn more about T+2, visit http://www.ust2.com/.

The switch to T+2 is less than a month away — be ready with Lightspeed Trader, one of the best stock trading platforms.

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