It takes two to tango… Less than a year to go until Canada shortens standard securities settlement cycle to T+2

by Keith Evans, Executive Director, Canadian Capital Markets Association

Canadian Capital Markets Association (CCMA) Executive Director Keith Evans congratulates The Association of Canadian Pension Management (ACPM) and its members on 40 years of service to Canadians through Canada’s pension industry.  The CCMA has a purpose in communicating, educating and helping co-ordinate the different stakeholders in the broader investment industry on projects spanning multiple parts of Canada’s capital markets.  One such initiative today is shortening the securities settlement cycle to T+2, or to two days after the date of a trade for debt, equity and fund transactions at the same time as the U.S., catching up with the faster turnaround already the rule in other prime markets.  The systems, procedural and regulatory changes needed for a shorter cycle will lead to a safer (one day less of counterparty, or credit, risk), more efficient (through greater automation and cleaned-up data), cheaper and globally competitive settlement process.

“T+2” refers to the two days between when a trade is executed (also known as trade date or “T”) and when it settles, i.e., when the buyer’s payment for securities is exchanged for the seller’s securities.  As in 1995 when settlement went from T+5 to T+3, participants in Canada’s securities industry are again working with U.S. counterparts, this time to meet a maximum standard two-day settlement cycle.  T+2 is already the European and major Asian country norm for assets that currently change hands here in North America on a three-day basis (see Exhibit 1).

 Exhibit 1:
 Securities going from T+3 to T+2 settlement
  • Corporate and most government bonds
  • Strips, coupons and residuals
  • Asset-backed securities
  • Equities/shares
  • Rights, warrants, units, and trusts
  • Limited partnerships and receipts
  • Segregated funds
  • Mutual funds
  For a complete list of affected securities, visit

As in the case of any interrelated systems and processes, updates can be complicated unless well-co-ordinated.  This means pension managers will want to work with their custodians and brokers because the stakes of being unprepared for T+2 can be high.  And unlike most implementations that are limited to only one firm, the change in settlement cycles really does require ‘two to tango’.  In fact, bilaterally throughout the securities settlement chain, from institutional investor – say, pension fund – to dealer and custodian to settlement infrastructure, all transfers of information, money and securities must work seamlessly.  September 5, 2017 will be too late to discover that a partner has two left feet!

The CCMA’s five T+2-dedicated committees include members from financial sector associations, like ACPM, as well as a cross-section of the buy side (investment and portfolio managers, including pension funds), sell side (dealers), custodians, infrastructure (marketplaces, CDS, Fundserv), back-office service providers, and vendors.  The CCMA is coordinating with the UST2 secretariat, as the two countries must remain in lockstep on the cutover to T+2.  Canada’s securities regulators are also participating.

Key milestone dates on the path to the September 5, 2017 T+2 cutover align generally with the U.S. implementation steps (Exhibit 2).

Exhibit 2: Milestones Remaining to Canada’s T+2 Implementation with the U.S.

1. Fall 2016 2. Year-end 2016 3.Spring/Summer 2017 Go live:  Trading
Sept. 5, 2017
Go live:  Settlement
Sept. 7, 2017
Respond to regulatory consultations Complete infrastructure development  Test internally, with infrastructure  First day affected securities trade for T+2 settlement Double settlement date: The last day T+3 trades will settle with the first batch settling on a T+2 basis

1. Fall 2016:  Respond to Regulators

On August 18, 2016, the Canadian Securities Administrators (CSA) issued a Notice and Request for Comments on Proposed Amendments to National Instrument (NI) and Companion Policy (CP) 24-101 – Institutional Trade Matching and Settlement and CSA Consultation Paper 24-402: Policy Considerations for Enhancing Settlement Discipline in a T+2 Settlement Cycle Environment.  NI 24-101 requires registered dealers and advisers trading on a delivery/receive against payment (DAP/RAP) basis for, or with, an institutional investor, to:
  • Follow policies and procedures to match such trades as soon as practical after trade execution and by noon on T+1 or, for non-North-American trades, by noon on T+2 (as amended, NI 24-101 will eliminate this difference, requiring matching of at least 90% of all trades by noon on T+1)
  • File exception reports if they have less than 90% of the total of such trades by value and volume matched by the designated matching time over the calendar quarter.
The accompanying consultation paper seeks feedback on other measures to improve settlement.  Comments on the paper and proposed rule amendments are due to the CSA by November 16, 2016.

The Investment Industry Regulatory Organization of Canada (IIROC) also issued proposed changes affecting dealers it regulates, with comments due by October 26, 2016.

2. Year-End 2016:  Analyse and Build

Pension fund managers should be able to rely on their brokers and custodians to help manage transition to T+2, but sponsors must know the dance steps.  They can seem deceptively simple – as with plumbing, Canada’s clearing and settlement system is taken for granted unless something doesn’t work.  What can you do to keep in step?
  • Check for problems in how you receive and deliver trade information, including allocations custodians must confirm.  Ask brokers and custodians for input: find out your fail rate; how your data entry and match rates compared to other firms’; if lent securities come back late; etc. 
  • Find out about changes (if any) to upstream and downstream external systems interfaces and procedural timing.
  • Clean up master security data – data elements allowing matching and straight-through processing
  • Review and integrate trade workflow processes internally and externally:  look at automating or taking other steps to prevent, or identify and correct, errors earlier and convert any remaining securities certificates to electronic. 
And always that forgotten tack on the floor… don’t underestimate behavioural challenges: for example, staff may have developed excel macro workarounds that are off-radar or you may have agreements with staff that no one needs to work on holidays when the U.S. is open and Canadian markets are closed – you may have to think again.
3. Q2/Q3 2017:  Test

Three organizations – Canadian Depository for Securities, Fundserv and the U.S. Depository Trust and Clearing Corporation issued T+2 testing plans.  They all: (i) do not make testing mandatory, (ii) are limited to testing between each organization and their direct clients/participants and (iii) have discussed some form of evidence of T+2 readiness.  While at this time pension funds appear unlikely to have to attest to their readiness, prudent sponsors will want to check their brokers and custodians are ready.

Getting off on the right foot
Check out for a recently released Buy-Side Checklist, newsletters, generic T+2 self-assessment tool, FAQs, issue logs, T+2 countdown clock and ways to ask questions.

On July 15, 2015, the Canadian Capital Markets Association’s board of directors announced the appointment of Keith Evans as Executive Director of the CCMA. Mr. Evans represents the CCMA in the co-ordination of an industry-wide effort to shorten the securities settlement cycle from the current three days to a two-day period after trade date, or T+3 to T+2.
Mr. Evans is a senior executive in the financial services industry, with extensive experience in clearing and settlement, corporate actions and project management. He worked for The Canadian Depository for Securities Limited (CDS) for 36 years, most recently as Executive Director, Operations. There he was responsible for the day-to-day operations and strategy of Canada’s national depository and clearing corporation.
Canada and the U.S. enjoy the most robust cross-border securities trading environment in the world, and Mr. Evans is looking forward to helping to facilitate a smooth transition to T+2 and to ensuring our financial industry remains competitive on the global stage.