Shortening the Trade Settlement Cycle

This notification is to remind you of the upcoming migration of the standard settlement cycle to T+1 (one business day following trade date). On May 24^th, 27^th, and 28^th 2024, Jamaica, Canada, the U.S. and Mexico will move to T+1 cycles, removing a significant amount of time available for submission, affirmation and settlement of trades.

Background

As previously announced, the Securities and Exchange Commission (the "SEC") adopted an amendment to Rule 15c6-1 on February 15, 2023. The amendment will reduce the standard settlement cycle from two business days following the trade date to one business day following the trade date (i.e., from "T+2" to "T+1").

Other markets around the world are also discussing plans for a move to T+1 settlement to better align with Jamaica, Canada, Mexico, and the United States.

Scotiabank’s Current Status

The Bank is prepared with an enterprise-wide focus on achieving operational readiness on a T+1 settlement cycle. We began by establishing industry-recommended baseline metrics to track settlement efficiency, client allocation and affirmation, recall volumes, corporate action events and reconciliations. Reinforced processes and controls to support the reduced timeline are now in place. This involved the implementation of enhanced technology and vendor solutions across various platforms to automate manual processes, streamline workflows and manage escalations efficiently.

In addition to those closely aligned to the T+1 program, Scotiabank staff across the organization are enrolled in T+1 education and training as part of the Bank’s global learning program.

What are the Expectations?

Please take the opportunity to identify and minimize areas of friction that may impede your ability to provide timely settlement instructions on trade date.

The transition from T+2 to T+1 results in changes to the affirmation, confirmation, and settlement process. We encourage you to review your internal processes and make any necessary adjustments related to changes in the trade settlement cycle.

Further Information

It’s important to have modernized trade settlement systems and procedures to handle the technical changes related to T+1. Otherwise, a significant increase in fails may result, leading to unwanted consequences such as increased operational costs, and reputational risk.

Allocations should be made as soon as possible after order execution to provide enough time for affirmation processing.

Please ensure Standard Settlement Instructions (SSIs) are accurate and complete on Trade Date.

Should you have any questions or comments, or if you are experiencing challenges or pain points with any aspect of the transition to T+1, please contact your Scotiabank Relationship Manager.

Frequently Asked Questions

T+1 is an industry regulatory initiative to shorten the trade settlement cycle. A T+1 trade settlement cycle is when the settlement of a trade occurs on the business day following the initial trade/transaction. This is not the first time the settlement cycle has been shortened, there were efforts to reduce the settlement cycle from T+5 to T+3 in 1995, and from T+3 to T+2 in 2017.

The ICI (Investment Company Institute) determined in its December 2021 “Accelerating the U.S. Securities Settlement Cycle to T+1” report that moving to a T+1 settlement cycle will increase the overall efficiency of the securities markets, mitigate risk, create better use of capital, and promote financial stability, provided that the appropriate balance is achieved between increasing efficiencies and mitigating risk.

Below is a summary of the primary benefits anticipated by adopting T+1 settlement as outlined by the ICI report and the ‘T+1 Securities Settlement Industry Implementation Playbook’:

Reduction of risk, particularly during periods of high volume and volatility.
Reduction in liquidity requirements: With firms’ market and counterparty exposure over the settlement period reduced.
Capital and operational efficiencies: Capital and operational efficiencies can be grouped into three categories: infrastructure modernization, standardization of industry processes and reduction in costs. The migration to T+1 provides opportunities to:

- Accelerate industry adoption of Straight-Through Processing and re-engineer certain processes.
- Optimize margin calculations and reduce margin requirements among customers, brokers, and clearing houses.
- Capitalize on the opportunity to standardize and synchronize processes to facilitate greater transparency and approach real-time/near-time access to critical data across the financial ecosystem.

Generally the securities lending market has a recall time cut-off of 3:00pm EST and the borrower has until close of T+2 to return before being potentially bought-in. We expect this to shift to T+1 EOD. Resultant real-time loss is a full day. This is currently the expected protocol going forward, however the industry as a whole is continuing to debate and this should not be considered final.

Shortening the Trade Settlement Cycle

Background

Scotiabank’s Current Status

What are the Expectations?

Further Information

Frequently Asked Questions

What is T+1?

Will Scotiabank be moving to T+1?

What are the benefits of moving to T+1?

How does T+1 affect me as an investor?

Where can I find more information on the transition?

What is the real time recall before cut off?

What is being implemented in both processes and procedures to mitigate failed trades caused by stock loans/recall issues to ensure shortened deadline is met?

What is being implemented in both processes and procedures to ensure affirmation within the specified time that all trades are matched on trade date?

Do you foresee any changes or amendments with regards to contacts for US/CA trades confirmation?

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