T+1 and Securities Lending: Preparation Could be a Competitive Advantage

May 31, 2023
  • Investor Services
BBH’s Tom Poppey and Rob Lees look at the changes that asset managers should prioritize and how they can use the race to T+1 to gain an edge.

What opportunities does T+1 present and what does it mean for securities lending?

T+1 is a turning point in the industry’s drive toward automation. The move to shorter settlement cycles offers an ideal opportunity to evaluate and update systems as it requires increasingly efficient trade processing. This will lead to broader benefits across investment operations and create a competitive advantage for those asset managers who use this moment to improve their use of technology and automation.

For example, this is a perfect time to push toward SWIFT and secure file transfer protocol (SFTP) communications, which will not only reduce turnaround time for a shorter settlement cycle environment but reduce manual errors and mitigate the risk of an increase in failed transactions.   

From a securities lending perspective, a shorter settlement cycle will not inherently create greater demand for borrowed securities, but it could create situations where counterparties may look to the securities lending market to source securities to meet those settlement needs.

What operational changes should asset managers be focused on now?

Generally, we expect minimal interruption to the broader securities lending market with market open and close times, reinvestment vehicle cutoff times, and any other current market deadlines all to remain in place. However, there are several areas where the shorter settlement cycle may have a significant impact, including: method and timing around sale notifications, and recall issuance.

  • Sale notifications: It will be important for managers to ideally transmit sale notifications to their agent lenders prior to close of the relevant exchange, typically 4:00 pm, on trade date (“T”) to ensure that recall due date and contractual settlement date for sale transactions are aligned.
  • Recall issuance: Managers should be aware of their current process and how their sale notifications are delivered to their agent lender. Those that require manual upload or processing will present challenges for issuing recalls within contractual obligated timelines.

This is where SWIFT and SFTP communications become critical.

Are there areas of the mandate that are still evolving?

As expected with a rule of this magnitude, there are still many moving parts. A couple that we’re paying close attention to include:

  • Settlement timing for those managers domiciled in Europe and Asia, where the U.S. move to T+1 stands to cut the time for receiving a sale notification and issuing a recall to as little as two hours in some instances. We anticipate an agreeable standard will emerge to ensure lending programs continue to operate in an efficient manner.
  • The timing of recall issuance, up to 11:59pm ET on trade date, remains unresolved and in need of a best practice that balances the needs of market participants. While agent lenders may prefer a later deadline for a recall to be recognized on trade date, pushing the recall issuance deadline only shortens the window by which counterparties can effectively process returns. It is not in the best interest of either agent lenders or counterparties to have recalls fail, potentially impacting sale transactions.

What questions should you be asking?

To assist lending activity and mitigate impacts, managers should ask the following questions of their agent lender: 

  • Has the agent lender undertaken a critical review of their technology, business process, and legal arrangements with managers and counterparties? An expert lender will also be able to draw on past initiatives, such as the implementation of the Central Securities Depositories Regulation (CSDR) Settlement Discipline Regime (SDR), to help plan for T+1.
  • Does the agent lender have sufficiently automated capabilities to ensure a shorter timeline from receiving a sale file to issuing a recall? Although these enhancements may not automate the process completely, they can significantly reduce the time between receiving a sale notification to issuing a recall.
  • Has the agent reviewed sale notification timing from the manager while the market awaits a consensus on what time counterparties are willing to recognize recalls issued on trade date? Regardless of where the industry settles on a best practice, a skilled lending agent will look to modify their operational capabilities to process U.S. recalls over multiple time zones.


For more insights on reviewing your processes in preparation for U.S. T+1, contact your BBH Relationship Manager and follow BBH Market Insights on LinkedIn.

Up Next
Up Next

T+1 Settlement and Beyond

As the world watches the U.S. market plan for a T+1 cycle for securities settlement, other countries are assessing similar moves. BBH is working with clients to help them optimize their global operating models and support their readiness for this major industry shift.

Brown Brothers Harriman & Co. (“BBH”) may be used to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries. This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2023. All rights reserved. IS-08936-2023-05-22

As of June 15, 2022 Internet Explorer 11 is not supported by BBH.com.

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see bbhluxembourgfunds.com

captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction