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The move to next-day settlement for trading in U.S. securities on Tuesday will require exchange-traded funds (ETFs) and the marketmakers to juggle multiple jurisdictional requirements and capital needs, market participants said. U.S. trading moves to a shorter settlement on Tuesday, which regulators hope will reduce risk and improve efficiency in the world's largest markets, but is expected to temporarily increase transaction failure for investors. The biggest headache that many ETF issuers and their service providers face is what happens when there's a "mismatch" between...

The U.S. market's transition to next-day (T+1) settlement for trading in securities aims to reduce risks and enhance efficiency. However, this change presents challenges for ETF issuers, marketmakers, and asset managers, particularly regarding mismatches in settlement schedules across different jurisdictions. The industry is preparing to adapt with additional collateral and liquidity management strategies.

A new rule called T+1 settlement is speeding up how fast buy and sell trades will be settled to one day. While the regulation is designed to make markets more efficient, it may create some challenges for financial firms.

John Hooson, managing director for BBH’s global ETF product team, explains how the business had had to evolve its service offering to cater for the influx of new business.  

Funds like the JPMorgan Premium Income ETF (JEPI) may be less attractive to investors during big rallies, but can still deliver solid payouts.