The SEC today adopted an amendment to Exchange Act Rule 15c6-1(a) to shorten the standard settlement cycle for most broker-dealer securities transactions. Currently, the trade settlement cycle for transactions is three business days (T+3), but the change decreases the period to two business days (T+2) to enhance efficiency and reduce risk for market participants.
T+2 provisions. The amendments to Rule 15c6-1(a) would prohibit broker-dealers from entering into security purchase or sale contracts that provide for payment and delivery later than T+2, unless otherwise expressly agreed to by the parties. In general, an investor buying a security must make payment to brokerage firm no later than two business days after trade execution and an investor selling a security must deliver the security no later than two business days after the sale. The amended rule would apply the T+2 settlement cycle to the same securities transactions currently covered by the T+3 cycle, including stocks, bonds, municipal securities, ETFs and certain mutual funds, and limited partnerships trading on exchanges. The requirement would not apply to exempted securities.
The effective date of the amendment will be 60 days after publication of the final rule in the Federal Register, and the compliance date for broker-dealers is set for September 5, 2017. To assist in preparation for the implementation of a T+2 settlement cycle, the Commission has established an email address (T2settlement@sec.gov) for the submission of inquiries to SEC staff.
Commissioner, industry comments. Noting that "rarely is an issue as commonsensical or broadly supported as this one," Acting Chairman Michael Piwowar applauded the adoption of the long-overdue change. The financial markets have changed significantly in the last two decades and T+2 will reduce risk exposures and liquidity pressures and improve the efficiency of the U.S. clearance and settlement system, he said.
Commissioner Kara Stein concurred, noting that trading is now nearly instantaneous and that the amended rule is a means by which to catch up with technological developments while decreasing risk and facilitating efficiency. However, she said, "more can and should be done," even to potentially enable T+1 and end-of-the-day settlement cycles. As such, she explained, the staff will study the effects of the T+2 settlement cycle and consider further improvements. The study is due to the Commission within three years of compliance with the amended rule.
The Depository Trust & Clearing Corporation, the Investment Company Institute, and the Securities Industry and Financial Markets Association, on behalf of the T+2 Industry Steering Committee, commended the SEC for its efforts to provide increased regulatory certainty.
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