The Role of Affirmations in the U.S. T+1 Transition

April 04, 2024
  • Investor Services
Optimizing your affirmation model in a T+1 Settlement Cycle.

With the upcoming T+1 settlement change, determining the right affirmations model will be critical in getting the most out of the new deadline.

Here’s what you need to know:

What is an affirmation and why is it important?

An affirmation is the process in which trade instructions and confirmations are verified by the two parties of the trade to allow for eventual settlement in the DTCC. With a shortened settlement cycle, the SEC has implemented certain rules to support best practices in a shorter time frame.

The SEC’s rule 15c6-2 promotes the completion of allocations, confirmations, and affirmations by the end of trade date for transactions between broker-dealers and their institutional customers. As a follow up, the SEC has also adopted a new rule requiring broker-dealers to either enter into written agreements as specified in the rule or establish and maintain written policies and procedures reasonably designed to address objectives related to rule 15c6-2 as soon as technologically practical.

How are trades affirmed?

There are two main approaches when it comes to how trades can be affirmed. One model engages a custodian for support across the affirmation process and the second model is direct affirmations, also known as self-affirmation, where the asset manager or financial institution (or a third party) affirms the trades directly.

Is regulatory reporting only required for SEC regulated firms? How do reporting requirements differ for direct affirmation vs custodian affirmations?

Yes, those firms who are Registered Investment Advisors (RIAs) are required to provide reporting on trade allocations and affirmations to the regulator. When managing direct affirmations, this will mean the affirming party will need to manage their records and provide them to the regulator when requested. With custodian supported affirmations, custodians can provide data on the custody perspective of the affirmation results, but the RIA still has the responsibility to answer the regulatory needs.

What is required of affirmation status reporting and what tools are being used to support?

Affirmation status reporting requires investors to consistently record and maintain records of allocations, confirmations, and affirmations, with each data point requiring a date and time stamp.

For those that are performing affirmations with a custodian like BBH, online reporting provides timestamps detailing the received instruction, the DTCC’s trade confirmation time from the custodian, when the trade was matched to a confirm, as well as when it was accepted.

What is a TradeSuite ID and what role do they play in the affirmation process?

Affirmations can only be completed if the party to the trades have a TradeSuite ID as this is the only mechanism in the U.S. market. This ID is required to code an account for affirmations at the custodian which allows the DTCC to match up electronic instructions between a buyer and a seller. When a broker sends a confirm to the custodian, they quote the Investment Advisor’s Trade Suite ID (amongst other details) for the trade in attempt to pre-match.

How do you set up a TradeSuite ID?

Clients can obtain a TradeSuite ID from DTCC. Without a TradeSuite ID, there is no opportunity for affirmation in the marketplace. TradeSuite IDs are a one-time set up that can used at all custodian banks to support the affirmations process.

Investments Advisors need to work directly with the DTCC to obtain a TradeSuite ID, BBH cannot apply for on behalf of a client to DTCC.

When is the U.S. affirmation cut off deadline and what are the benefits of affirming trades on time?

The DTCC cut off time for U.S trade settlement is 9pm ET. BBH’s instruction deadline is 7.30pm EST on T0 to allow for time to meet the DTCC 9PM EST T0 affirmation deadline.

TradeSuite IDs automate the communication of trade details between parties, allowing for accelerated settlement, and lower likelihood of failure to settle. Having the right affirmation process in place will encourage settling transactions on time, reducing the risk of higher costs or trade failures.

Next steps for affirmations under a T+1 timeline:

BBH recommends working with the DTCC to set up your own Tradesuite ID (where needed) so it is ready to use before the May 28th 2024 conversion date. This process may require testing before the conversion date as well as updated contact lists/trees in case of escalations or urgent support for trade processing around U.S. settlement deadlines.

DTCC instruction, affirmation and settlement cut-off changes

The following are some of the high-level changes being proposed per the compressed settlement cycle:
 


 

Process Current T+2 Settlement Needs Future T+1 Settlement Needs
DTC Institutional Trade Processing (ITP) Affirmation Cut-off 11:30am EST on S/D -1 (T+1) 9:00pm EST on S/D -1 (T)
EDC Night Cycle batched start time 8:30pm EST of S/D -1 11:30pm ESTon S/D -1 (T) (Authorized transactions will be introduced as Delivery Orders on the night cycle)
DTC Close of Business settlement 3:30pm EST of S/D -1 3:30pm EST on S/D
ETC Delivery Cut-off for Valued Transactions 3pm EST on S/D 3pm EST on S/D
ETC Delivery CutOff for Free Deliverables 6:15pm EST on S/D 6:15pm EST on S/D

To watch the full webinar recording, please visit: All About Affirmations

For the latest content, webinars, blogs, and more covering the shortened settlement cycle and the impacts, visit: BBH's T+1 Settlement and Beyond page.

In response to your questions, to learn more about how BBH can support your affirmations models, please find out more here.

""
Up Next
Up Next

T+1 Settlement and Beyond

As global markets continue evolving for T+1 settlement cycles, BBH is working with clients to help them optimize their 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. Pursuant to information regarding the provision of applicable services or products by BBH, please note the following: Brown Brothers Harriman Fund Administration Services (Ireland) Limited and Brown Brothers Harriman Trustee Services (Ireland) Limited are regulated by the Central Bank of Ireland, Brown Brothers Harriman Investor Services Limited is authorised and regulated by the Financial Conduct Authority, Brown Brothers Harriman (Luxembourg) S.C.A is regulated by the Commission de Surveillance du Secteur Financier. All trademarks and service marks included are the property of BBH or their respective owners. © Brown Brothers Harriman & Co. 2024. All rights reserved. IS-09807-2024-03-26

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