T+1: Everything you need to know to manage the 2024 change

This adjustment, which will apply as of May 28, 2024, is pursuant to the Securities and Exchange Commission (SEC) rule adopted on February 15, 2023 and will have significant implications for securities issuers.

Highlighted below are the three most important points you should consider in regards to this transition and how dematerialization can help ensure efficient transactions for your shareholders. 

1. Equity Plan Documents

With the shift to T+1 settlement, it is crucial for issuers to make operational adjustments to accommodate the shorter settlement cycle. The biggest impact of this change for you as an issuer will be to equity award plans. You should seek to review any equity award plan documents to ensure they account for the change in settlement cycle. It’s very likely any references to the settlement cycle in your plan documents were updated to remove a time reference when the settlement cycle moved from T+3 to T+2.  Nevertheless, it would be helpful to confirm this is the case for all active equity plans and consult with legal counsel to determine if amendments are needed.

2. Understand Your Stock Plan Administrators Process

It is important you are knowledgeable of any changes to your stock plan administrators processes that may need to be communicated to plan participants. As your transfer agent, we are here to assist you in streamlining your operations and ensuring a smooth settlement process. However, we need to receive the instructions to issue shares from the stock plan administrator before we can complete delivery of the shares. Therefore, it is important to understand if there will be a change to the delivery of the equity award issuance instructions to the transfer agent. If the current process calls for these instructions to be sent by the end of the working day on T+1 or later, the process likely needs to change, or there may be a risk of failed trades. As a transfer agent, we are updating our processes to accommodate this change.

3. Cash Flow Management

The shorter settlement cycle will impact your cash flow management as an issuer. While you will receive the proceeds from the sale of securities sooner, you will also need to make any necessary payments or transfers related to the settlement obligations promptly, most commonly in connection with share repurchase activity. It is essential to review your cash flow and ensure that you have sufficient liquidity to meet your settlement obligations within the new timeframe.

Dematerialization and Shareholder Efficiency 

In addition to the shift in settlement cycle, dematerialization plays a crucial role in ensuring efficient share transactions for your shareholders. Dematerialization refers to the process of converting physical share certificates into electronic form (DRS, or Direct Registration), eliminating the need for physical delivery and settlement. By holding shares in book entry form, shareholders can conduct share transactions seamlessly and quickly, reducing the risk of delays or large premiums to replace lost certificates. 

As a transfer agent, we highly recommend conducting an outbound campaign to request that shareholders deposit their share certificates in book entry as a proactive step to prepare for the shortened settlement cycle. Encouraging them to convert their physical certificates into electronic form facilitates faster and more efficient transactions. EQ can assist in managing this campaign and can provide comprehensive support to shareholders throughout the dematerialization process.

By embracing dematerialization and encouraging shareholders to deposit their share certificates, you can ensure smoother and more efficient transactions in the new T+1 settlement cycle. Our team is ready to guide you through this process and provide the necessary expertise and support.