Industry Updates

State Street shortens settlement cycle on ETFs ahead of T+1 in US

US set to move to a T+1 settlement cycle this month

Theo Andrew

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State Street Global Advisors (SSGA) has shortened the settlement times on dozens of ETFs in preparation for the move to a T+1 cycle in the US.

Overall, 42 ETFs with significant exposure to US, Canadian and Mexican equities will see their creation and redemption settlement cycles reduced from two days to one.

It comes as the US prepares to move from a T+2 to a T+1 settlement cycle later this month, a move expected to have a far-reaching impact on the European ETF market.

Products such as the SPDR S&P 500 UCITS ETF (SPY5) and the SPDR S&P U.S. Dividend Aristocrat UCITS ETF (USDV) will be impacted while global exposures such as the SPDR MSCI World UCITS ETF (SWRD) will also see their cycle change.

With Europe remaining on a T+2 cycle, asset managers in Europe have been rushing to prepare for the move, particularly with concerns around ETFs breaching UCITS funding rules.

ETFs risk breaching several UCITS rules including cash and overdraft levels following the move in the US.

Last month, the European Securities and Markets Authority (ESMA) rejected calls from the industry to change UCITS rules following concerns ETFs could be in breach under T+1 misalignment.

Industry figures had called for a temporary suspension of the Central Securities Depository Regime (CSDR) due to increased risks of settlement fails.

However, ESMA said it does not see any obstacles in the EU legislation for UCITS to deal with the expected change of the settlement cycles to T+1 in the US.

In October last year, ESMA issued a call for evidence to consult on shortening the settlement cycle across equities, fixed income and ETFs in Europe, while the UK said it would look to coordinate its cycle with the EU.

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