t+2 settlement cycle


T+2 settlement cycle update

Using T+2 as a catalyst to improve asset servicing and corporate actions processing

The accurate, automated processing of corporate actions will be more important than ever with the transition to a T+2 shortened settlement cycle. Under T+2, existing processes that are paper-based, error-prone, and highly manual will have one less day to be completed—increasing the risk of failure. In preparing for T+2, organizations will need to ensure their internal data is up to par.

The corporate actions lifecycle

T+2 will require changes across the entire corporate actions lifecycle, from announcements to booking and reconciliation. Below are some of the many issues organizations will need to address in their corporate actions processes:

  • Announcement and capture: Vendors and service bureaus need to assess their delivery systems and incorporate T+2 information into event announcements, such as shortened periods for expiration dates and cover/protect dates
  • Entitlement and notification: Eligible positions will need to be established based on ex-dates for mandatory and income corporate actions that are one day earlier under T+2
  • Instruction: Cover/protect date calculations for voluntary corporate actions will need to be shortened for T+2 settlement, and organizations will need to notify customers of the shortened date period
  • Calculation: Ex-date calculations need to be shortened to “record date minus one,” and calculations for “take-off sheet” adjustments and dividend reinvestment need to be adjusted for T+2
  • Payments: Systems and operations that support dividend reinvestment processes need to be reviewed and adjusted. Failure to process these payments for T+2 could create financial risks, including the direct cost of late payments in forgone interest for investors
  • Booking and reconciliation: Organizations should review position booking systems for coding related to settlement date and then make adjustments for T+2

A catalyst for improvement

Organizations should view the T+2 migration as an opportunity to go beyond the basic requirements and fundamentally improve how they process corporate actions. For example, financial services companies are beginning to adopt ISO 20022. This new global messaging standard captures corporate actions in a single announcement and common language, enabling more efficient straight-through processing. However, other ISO messaging standards are still being used in the market. Organizations can capitalize on the move to T+2 by coordinating with their vendors and service bureaus, getting everyone to agree to receive and deliver corporate actions using the new ISO 20022 standard.

Stay tuned

This update took a detailed look at the asset servicing aspects of the T+2 playbook, especially those related to corporate actions processing. Future updates will discuss the steps requirement to implement and execute the changes associated with the other T+2 Playbook components, including documentation, additional considerations, regulatory changes, and testing and migration.

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