T+1 transition FAQ

CASLA is pleased to release the below questions and answers as it relates to the upcoming T+1 transition, set for Monday May 27 in Canada and Tuesday May 28, 2024 in the United States. Over the past 12+ months the CASLA T+1 working group has worked closely with our members, industry participants and industry associations and bodies to ensure a smooth move to T+1 for all. The below is information is intended to provide clarification on established market and best practices only.

Q: Why does the DTCC T+1 Playbook reference 11h59PM for recall notification?

A: Recall notices should be sent to the borrowers as soon as possible in order to give the borrower ample time, as of the day of the recall, to manage inventory requirements. It appears that the objective of having recalls issued up to 11:59pm EST is to encourage borrowers to utilize commercially reasonable efforts to attempt to return securities the next business day. The spirit of this practice is to promote efficient settlement discipline and potentially reduce settlement risk by providing notification to Borrowers earlier, allowing inventory management protocols to be initiated to ensure timely return(s) and to avoid increased market fails.

Q: What is the Recall Cutoff time?

A:  Unless otherwise provided in the existing contractual agreement between counterparties/market participants, recalls issued prior to the cutoff time currently set out in that agreement will continue to have a settlement date on the following business day. Pursuant to the terms of such contracts, an additional day will be added to recalls issued between the cutoff time and 11:59pm EST (including for buy-in execution) because contractually, notices issued after such cut-off time will continue to be deemed as received the next day. Therefore, despite the best effort practice to settle by the next day for notices issued between the cutoff time and 11:59pm EST, the terms of the agreement should continue to prevail. Industry organizations cannot comment on shortening the notification deadline due to the fact that they do not know what is in everyone’s documentation.  However, standard MSLA/GMSLA reference “close of business” as the cut-off time, after which the settlement occurs pursuant to “standard settlement time on the exchange/clearing organization”. The industry has operated in Canada and in the United States with an understanding that this cutoff is 3pm EST. CASLA does not anticipate this changing in a T+1 environment unless otherwise agreed to in contractual arrangements negotiated between counterparties.

Q: How can my organization prepare to ensure recall fails to not increase in a T+1 environment?

A: All market participants need to adopt behaviors that will ensure that the market achieves efficient settlement discipline and reduced settlement risk. Automation when it comes to sending and receiving recalls is a key aspect, along with using commercially reasonable efforts to return recalled securities as soon as possible, even if recall notices are issued after the contractual cut-off times.