Hedge Funds and T+1: Prime Broker Allocations and FX Funding
Updated October 2026, after T+1 took effect. First published March 2024.
For a hedge fund, T+1 pulled two jobs into trade date. The first is getting allocations to the executing broker fast enough for the trade to be affirmed and moved to the prime broker that night. The second, for a fund that doesn't keep dollars on hand, is buying the dollars in time to pay on T+1. The first version of this post offered general dos and don'ts. This one follows those two jobs through the day, with the times that apply now.
The Prime Brokerage Trade on Trade Date
The fund executes with an executing broker, then allocates the block to its accounts at the prime broker. SEC Rule 15c6-2, in effect since May 28, 2024, requires the broker-dealer to complete allocations, confirmations, and affirmations "as soon as technologically practicable and no later than the end of the day on trade date," either through written agreements or through its own policies and procedures. The rule binds the broker, not the fund. Funds feel it through their brokers' cutoffs. For how brokers chose between the two options, see our post on Rule 15c6-2 in practice.
The times that matter come from the T+1 Industry Implementation Playbook that SIFMA and ICI published with DTCC's help:
| When | What happens |
|---|---|
| 9:00 p.m. ET on T | Affirmation cutoff. Prime brokerage trades affirmed through DTCC by then go to NSCC's Continuous Net Settlement (CNS) if they're eligible, and the NSCC margin requirement moves from the executing broker to the prime broker. |
| Morning of T+1 | Under the SEC's 1994 prime brokerage no-action letter, the executing broker's trade details are due to the prime broker by the morning of the next business day. The playbook found no change to the letter was needed for T+1. |
| 9:00 p.m. ET on T to 1:30 p.m. ET on T+1 | If the prime broker disaffirms a trade it already affirmed, NSCC books a reversal for same-day settlement. |
| 1:31 p.m. to 5:00 p.m. ET on T+1 | A disaffirmation in this window produces a reversal that settles the next business day. 5:00 p.m. ET on T+1 is the last chance to disaffirm. |
Either kind of reversal can change both brokers' NSCC margin, and the playbook warns the same-day kind can bring intraday margin calls. So a wrong allocation that turns up on T+1 isn't a quiet fix at the fund. It's a reversal two brokers have to fund. The playbook also concluded that the SIA Form 150 and Form 151 needed no changes for T+1. The documents still have to be in place before the first trade; our post on T+1 and prime brokerage documents covers which ones.
FX Funding for a Fund That Doesn't Hold Dollars
A Cayman or European fund buying U.S. stock pays in dollars on T+1. If it buys those dollars with a standard spot trade, it gets them too late: the SEC's T+1 adopting release notes that spot FX typically settles on T+2, with exceptions such as U.S. dollars against Canadian dollars, which settle T+1.
The clock is tight even for a next-day FX trade. U.S. equity markets close at 4:00 p.m. ET, which is 22:00 CET. CLS, the payment-versus-payment settlement system for FX, takes instructions for a settlement day until its 00:00 CET deadline, or 6:00 p.m. ET for most of the year. That leaves about two hours after the close to know the fund's net dollar need, trade it, and get it into CLS. CLS looked at moving that deadline and decided not to. It estimated that only about 1% of its average daily settlement value (USD 6.6 trillion as of May 2024) came from non-U.S. funds trading U.S. securities and settling FX on T+1, and it reported no negative effect on its settlement values after the switch.
A fund that misses the CLS deadline still settles the FX, just outside CLS's payment-versus-payment protection. CLS points late instructions to CLSNet, its netting service. The U.K. T+1 plan asks firms to review their practices under the FX Global Code for exactly those trades, since a payment made before the other side's currency arrives is a credit exposure.
The SEC described three adjustments when it adopted T+1. Keep the FX desk open later. Pre-fund purchases you expect instead of funding them with same-day FX. Or, as one commenter suggested, meet the need by redeeming money market positions or drawing on other resources. It turned down a request to close U.S. equity trading at 3:00 p.m. to give FX desks more time. Each choice costs something: later shifts, idle dollars, or cash pulled from other investments. Which is cheapest depends on how predictable the fund's U.S. buying is.
What the Fund's Operations Team Should Own
- Allocations to each executing broker within minutes of the block fill, and a list of each broker's cutoff under its Rule 15c6-2 procedures.
- Settlement instructions at the prime broker and custodian kept current in DTCC's ALERT database. Our post on standing settlement instructions covers why they matter more when there's one day to fix a bad one.
- A contact at the prime broker who will call before the 5:00 p.m. ET disaffirmation cutoff on T+1, not after it.
- A net dollar figure ready by about 5:30 p.m. ET, so the FX desk can meet the CLS deadline.
For funds based in Europe, part of the funding gap closes on October 11, 2027, when the EU, the U.K., and Switzerland move to T+1. Proceeds from European sales will then arrive on T+1 too. Our post on the European moves covers what changes then.
This post is for informational purposes only and does not constitute legal advice. For guidance on specific regulatory obligations, consult your counsel or compliance advisor.