SEC proposal: Shortening the securities transaction settlement cycle

Mar 02, 2022
Audit Financial reporting SEC matters Capital markets

The SEC recently issued a proposed rule, which, if finalized would shorten the standard settlement cycle for most broker-dealer transactions from two business days after the trade date to one business day after the trade date (T+1). To facilitate a T+1 standard settlement cycle, the SEC proposes to:

  • Amend 17 CFR 240.15c6-1 (Rule 15c6-1) to establish a standard settlement cycle of T+1 for most broker-dealer transactions. This would require broker-dealers to ensure that contracts for the purchase or sale of a security (other than exempted securities) provide for payment of funds and delivery of securities no later than the first business day after the date of the transaction.
  • Repeal Rule 15c6-1(c), which currently establishes a T+4 standard settlement cycle for firm commitment offerings priced after 4:30 p.m. ET. However, Rule 15c6-1(a) and Rule 15c6-1(d) would continue to provide for an extension of the settlement period if the parties expressly agree to a different settlement timeframe at the time of the transaction.
  • Add new 17 CFR 240.15c6-2 (Rule 15c6-2) to prohibit broker-dealers who have agreed with a customer to engage in an allocation, confirmation or affirmation process from effecting or entering into a contract for the purchase or sale of a security on behalf of that customer unless the broker-dealer also has entered into a written agreement that requires the allocation, confirmation, and affirmation to be completed as soon as technologically practicable and no later than the end of the day on trade date in order to complete settlement in the timeframes required under Rule 15c6-1(a).
  • Amend the recordkeeping obligations (17 CFR 275.204-2) of investment advisers to ensure they are properly keeping records of each confirmation received, and any allocation and each affirmation sent, with a date and time stamp for each allocation (if applicable) and affirmation that indicates when the allocation or affirmation was sent to the broker or dealer under any contract an adviser is party to under Rule 15c6-2.
  • Require a clearing agency that is a central matching service provider to (a) establish, implement, maintain and enforce written policies and procedures that facilitate straight-through processing and (b) submit an annual report via EDGAR to the SEC that describes its current policies and procedures, progress and the steps it intends to take to facilitate straight-through processing of institutional trades.

The SEC proposes to require compliance with a T+1 standard settlement cycle, if adopted, by March 31, 2024.

The proposal sets forth a number of requests for comment regarding the proposed shortening of the securities transaction settlement cycle and also on how best to further advance beyond T+1. Industry participants are encouraged to consider submitting feedback to the SEC. The public comment period will remain open for 30 days after the proposal is published in the federal register.

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