Exchange traded fund industry participants are bracing themselves to take on a costly transfer of risk from US retail brokers, such as Robinhood, when the US unilaterally implements T+1 settlement in May next year.
The move, which will reduce the standard US trade settlement cycle of two business days to just one for all securities (US Treasuries already settle on T+1), would reduce “credit, market and liquidity risks” for market participants, according to the US Securities and Exchange Commission.
But critics said the additional costs this will create for many ETFs, including US ETFs with exposure to overseas markets, will disproportionately be borne by non-US investors because most of the rest of the world will continue to operate on a T+2 basis.