The original article was published on Börse am Sonntag. The following is a translated version in English (the original German version is below):
The reduction in the so-called settlement risks in securities trading with North American stocks also represents an immense change for German brokers and asset managers.
"Sell in May and go away!" The long-standing stock market tip would be completely wrong for German asset managers and brokers this year. If it ever had general validity at all. Because in May of this year there will be a profound change for the brokers and co. who are also present on the North American market. One that requires all your presence and concentration, and which also affects the local customers of financial service providers.
And that's what it's about in detail: At the end of May 2024, the US Securities and Exchange Commission (SEC) will introduce a shortening of the settlement cycles in securities trading - instead of the previous "T+2", it will then be "T+1". This means that in future all trades must be completed on the books the day after the trade, so the deadline is shortened by a full day or 50 percent. Certain transactions that you still have until T+2 to complete today will have to be settled one day earlier, namely on T+1. In future, these orders will be executed on the trading day, affirmed on the trading day and settled on the following day.
This change affects not only the American market, but all international financial players, including German asset managers and brokers. Shortening the settlement period after buying, selling or borrowing a security from two days to one represents a huge challenge. But it is also an opportunity to increase efficiency and responsiveness in the financial sector.
The move to T+1 has far-reaching implications for various financial products, particularly exchange-traded funds (ETFs), securities lending and actively managed funds. The shortened deadline increases pressure on all market players to adapt their internal processes and systems, especially for those with participation in the North American market. German asset managers and securities traders face the additional challenge of time differences, which make it difficult to adapt to the new US market hours.
Despite the challenges, T+1 also offers advantages - advantages that primarily benefit private investors who also place orders from Germany to buy or sell US stocks. Reducing settlement time reduces settlement risks and the number of transaction fails.
But simply switching from T+2 to T+1 is not possible. Immense technological steps and real quantum leaps in settlement processes are required.
Automation plays a key role here. To manage the transition, German asset managers and brokers must act immediately. Spring is just around the corner - so it won't be long until the changeover in May. The central task is to review and adapt internal processes and systems. This includes not only technical upgrades, but also strategic realignment to keep pace with changing market conditions. The implementation of automated solutions is essential in order to meet the new requirements and ensure competitiveness.
The introduction of T+1 in US securities trading is more than a regulatory requirement: it is a wake-up call for the global financial industry, especially for some German financial services providers that are still struggling to keep up with the necessary digitalization and automation in the industry. The transition from T+2 to T+1 requires rapid adaptation and modernisation, but also offers the opportunity to become more efficient and responsive. Investors will benefit from even better trading opportunities with US securities from May. You should also keep a close eye on which brokers are leading the way with the change – and which are having problems. Voting with your feet has never hurt...