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What is “T + 1”? When will this change go into effect?

T+1 refers to reducing the number of days to settle a security trade from the current three business days to one business day. If you were to call your broker today and ask him or her to buy 100 shares of XYZ, the order would be entered electronically into the appropriate stock exchange (one on which the stock is listed).

The stock exchange would reply by sending a confirmation notice called a “fill” to the broker by the end of the day in which you called in your order. The second day the exchange and the broker would send details of the buy such as the number of shares and the quoted price from the previous day to the Canadian Depository of Securities (CDS) which clears all trades in Canada.

CDS also finds someone who is interested in selling the shares of the same company to facilitate the sale. On the third day the CDS transfers the cash and stock usually electronically between the buyer’s and the seller’s accounts and notifies both brokers. Both the buying broker and the selling broker report the final transaction into their records and update the accounts of their clients in cash and securities.

The whole process takes three days or what is called “T+1”. Because stock prices and markets can trade dramatically within that time the Canadian and American securities industries have set June 2005 as the deadline to move from the current system of settling transactions within three days after the trade to one day (T +1).