T+1 and the FTSE Russell Question: Nigeria Should Stay the Course

FTSE Russell's decision to place Nigeria's planned reclassification to Frontier Market status under further review, following the Securities and Exchange Commission's adoption of a T+1 settlement cycle, has sparked debate. Some observers question if this reform inadvertently created new barriers for foreign investors. However, this perspective overlooks a crucial point: should a market be penalized for adopting reforms embraced by leading global financial centers?

The core principle of T+1, a settlement cycle where trades are finalized within one business day, is not experimental. It is rapidly becoming the global standard. By reducing the settlement period, T+1 lowers counterparty risk, enhances liquidity, enables quicker capital recycling, and strengthens market resilience. These are the same objectives driving its adoption in major markets like the United States, Canada, Mexico, and India, with the United Kingdom and the European Union preparing similar transitions.

FTSE Russell's concern appears to stem not from T+1 itself, but from potential operational challenges for some international investors, particularly regarding foreign exchange funding and time-zone differences. While this is a valid issue to examine, it should not overshadow Nigeria's adherence to the Delivery versus Payment (DvP) model, where cash and securities are exchanged simultaneously. The shift to T+1 shortened the settlement cycle but did not introduce mandatory trade-date prefunding.

In preparation for the transition, Nigeria's market adjusted its settlement timetable after extensive consultation with international custodians, moving settlement from 8:00 a.m. to 5:00 p.m. on T+1. This provides participants more time for funding and operational processes. Foreign investors are only required to ensure funds are available before the settlement cut-off on the settlement day, maintaining flexibility to execute trades before arranging funding. The change fundamentally alters when settlement occurs, not how it occurs. Like any market adopting T+1, Nigeria's post-trade ecosystem will continue refining processes as participants adapt, a normal evolution in market modernization, not a sign of structural weakness.