The Ontario Securities Commission published a report to evaluate the impact of the change to T+1 on the prevalence of trades that fail to settle in the allowed time frame.
The main findings are:
- There was no significant change in the average proportion of traded securities with fails after T+1 settlement was introduced. Since 2021, this proportion has declined among non-ETFs. We see a similar decline among ETFs, along with a 60% increase in the number of traded ETFs over the period.
- The proportion of total traded value that fails to settle by the allotted date (fail rate) has been trending downward. This trend remained relatively unchanged after the implementation of T+1. In the week following the transition to T+1, the daily fail rate stayed below 2% while the weekly average remained under 1%.
- After T+1 implementation, average daily fail rates occasionally exceeded their long-term averages but remained below historic highs and were concentrated among a few securities with high fail values on that day. This is true for ETFs and non-ETFs in all four Canadian listing markets.
Fail Rates Increased for Some Listed Securities
Although some listing markets experienced a slight increase in fail rates following T+1, they were often concentrated among a small number of securities and remained below historic highs. When comparing 5-month averages, fail rates for Canadian Securities Exchange (CSE) non-ETFs increased by the largest amount following T+1 implementation.
These average fail rates remained small in magnitude, barely exceeding 3%. The average fail rates vary depending on how many months of fails data are used to calculate the mean. [16]However, thelargest group of securities, TSX non-ETFs, had exceptionally low and stable fail rates; the 5-month average fail rate remained below 1%before and after T+1 implementation.
The OSC performed statistical tests to assess whether there was a structural change in fail rates in 2024 following the T+1 implementation. The overall results for ETFs and non-ETFs indicate that there was no significant change in fail rates after the transition to T+1 settlement in late May 2024.
“Overall, Canadian equity markets were able to adjust to the shortened settlement window,” the OSC wrote in the executive summary.