NEW YORKLONDON, May 20 Reuters Participants in the United States39; multitrilliondollar securities markets face an early test of their ability to cope with regulatory reforms to speed up trade settlement, as a major index rebalance scheduled to occur just days after the planned switch risks causing a spike in failed trades.

Starting May 28, U.S. stocks and corporate bonds must settle one business day after trading instead of two. Markets in Canada and Mexico are also adopting the reforms, which have been designed to reduce counterparty risk and improve market liquidity.

But just three days after this new standard known as T1 takes effect, MSCI global indexes will rebalance in a quarterly event, leaving some participants concerned that one of the largest trading days of the year could strain markets adjusting to the new regime. The rebalance means funds must readjust their holdings to keep their mandates tracking the index.

This really is the rubber hitting the road immediately after T1 goes live, said Gerard Walsh, who leads Northern Trust39;s Global Capital Markets Client Solutions group.

The MSCI rebalance occurs across thousands of funds, ETFs, portfolio structures, Walsh added. It39;s a big deal.

The industry should brace for an immediate spike in failed settlements on account of several separatebutrelated market events, including the rebalance, Walsh added.

During the last rebalance, average global volumes spiked 120 in what was a 47 billion trading event…