It is the end of finance in: T+3, T+2, T+1…

Quick heads up for investors: the US and Canada are changing to T+1 next week. Some doomsayers are calling for widespread disruption. It is worth considering whether this is a Y2K event or something more sinister.

From Bloomberg:

spike in the number of failed trades, operational glitches and additional costs are among industry fears as the trading process for American securities accelerates, with the time allowed to complete every transaction halved to a single day.

International investors — who hold about $27 trillion in American markets — face a system in which the usual method of funding a US trade takes longer than they actually have to execute the deal. Unheralded parts of the trading process like affirmation (confirming details), fixing errors, and recalling securities out on loan must happen at least twice as fast. Global funds face a mismatch where cash flowing in and out moves at a different speed to the assets they have to buy and sell.


The T+1 regime increases the chance of failures because the compressed timeframe risks making errors more likely, while at the same time reducing the opportunity to correct them. Most crucially, it makes it harder for buyers and sellers to ensure their funds and securities are ready.


It is hard to judge from outside looking in. The providers I use all talk about the situation being “in hand”, but the risk is unlikely to be in the bigger brokers and more likely to be at the margin.

There are countries that already use T+1, including that bastion of bureaucracy: India. So we are not talking about some unbelievably rapid requirement.

There will likely be teething issues, and funds that need to slow their international trades to cope with slower settlement times in Europe. But these are the minor risks.

The bigger risk is that there are hedge funds or traders, who probably already have issues, that the move to T+1 uncovers. When you are shuffling problems around and relying on two days of funding, losing a day in half the planet might be enough to convince you to give up.

My take:

  • The changes will lead to a lower-risk system after we get through the conversion.
  • The conversion is the very definition of a liquidity rather than a solvency issue. The type of issue that regulators are good at solving.
  • Every day, there is a very, very small chance that someone big “blows up” like Archegos or LTCM. Next week, we can remove one “very” from the odds for a few days.


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