State Street Shortens ETF Settlement Cycle

State Street Shortens ETF Settlement Cycle

Move comes as U.S. is set to move to a T+1 settlement cycle this month.

Reviewed by: Ron Day
Edited by: Staff

State Street Global Advisors, the No. 3 U.S. exchange-traded fund issuer, has shortened the settlement times on dozens of ETFs in preparation for the move to a T+1 cycle in the U.S.

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

The unit of State Street Corp., whose SPDR business manages $1.26 trillion in 137 ETFs, is making the change 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.

The rule change, expected to reduce trading risk, isn't expected to make a noticeable impact on ETF trading, reported last year. The Securities and Exchange Commission is trying to prevent a repeat of the 2021 meme-stock crisis when shares of video-game retailer GameStop and other stocks that were heavily shorted by hedge funds rose rapidly.  

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.

Europe on T+2 Cycle

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 U.S.

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.

Theo Andrew joined ETF Stream as a senior reporter in September 2021. He has over four years of investment writing experience spanning pensions and retail investments, most recently at Citywire, where he was a senior reporter covering environmental, social and governance investing.