Affected securities include equities and corporate and municipal bonds, and unit investment trust (UIT) trades in the US, Canada and Mexico, Peru and Argentina.
The transition aims to reducing operational and systemic risks by forcing securities through the market infrastructure quicker, thereby allowing counterparties to avoid trade failures.
The shorter settlement timeframe also aligns these markets with the EU, which moved to a T+2 settlement cycle in 2014.
More than $300 billion of in-scope securities was traded on average every day in 2016.
In a joint statement on the transition, the Depository Trust & Clearing Corporation (DTCC), the Securities Industry Financial Markets Association (SIFMA) and Investment Company Institute (ICI), which were founding members and co-chairs of the T+2 Industry Steering Committee (T+2 ISC), said the move will “provide significant benefits, including reduced market and counterparty risk, increased financial stability and improved safety and efficiency for investors and market participants”.
DTCC also estimated the lower levels of risk associated with a shorter settlement cycle will reduce the average daily capital requirements for clearing trades through DTCC's National Securities Clearing Corporation (NSCC) by approximately 25 percent, or $1.36 billion.
Murray Pozmanter, head of clearing agency services and global operations and client services at DTCC said: “The US move to a T+2 settlement cycle marks the most significant change to the market’s settlement cycle in over 20 years.”
“A collaborative industry-driven effort with strong support from regulators, the T+2 initiative has achieved its common goal, which will ultimately further reduce risks and costs for the benefit of the investors and market participants.”
The settlement cycle was last changed in 1995 from T+5 to T+3.
Marty Burns, chief industry operations officer at ICI, and co-chair of the T+2 ISC, added: “Foresight, leadership, and collaboration in the financial industry have resulted in the transformational move to T+2.”
“Market participants are pleased with the strong support of regulators in achieving this goal, but it is worth noting that the industry initiative toward a shorter settlement cycle took root and progressed without regulatory mandates."
"Without question, the most significant value of T+2 is its effect of reducing settlement risks and enhancing market resiliency for stakeholders and, most importantly, investors.”