T1 = Next Day Settlement Cash
Shortening the Securities Transaction Settlement Cycle!
Final rules will shorten the process for settling securities transactions from two business days to one
The Securities and Exchange Commission (“Commission”) is adopting rule amendments to shorten the standard settlement cycle for most broker-dealer transactions from two business days after the trade date (“T+2”) to one business day after the trade date (“T+1”). In addition, the Commission is adopting new rules related to the processing of institutional trades by broker-dealers and certain clearing agencies. The Commission is also amending certain recordkeeping requirements applicable to registered investment advisers.
Regarding the implementation of the Securities Exchange Commission (SEC) approved changes to modify Rule 15c6, Shortening the Securities Transaction Settlement Cycle, from trade date plus two (T+2) to trade date plus one (T+1). The SEC received over 3,000 comments, where most advocated for the shorter settlement cycle and supported a longer period to implement the change from the proposed March 31, 2024 compliance date. The industry widely promoted a conversion over the Labor Day weekend, September 2, 2024. In a vote of 3 to 2 the SEC approved a May 28, 2024 compliance date.
In the final rule the SEC excludes security-based swaps and adopts shortening the settlement cycle for firm commitments priced at 4:30 p.m. EST from T+4 to T+2. The rule promotes the completion of allocations, confirmations and affirmations by the end of trade date between broker-dealers and institutional customers.
The commission adopted new rule 15c6-2, which requires broker-dealers to enter into written agreements with their clients or enforce policies and procedures that are reasonably designed to achieve same day trade allocations, confirmations and affirmations by the end of trade date. In addition, the commission is enhancing the rule for Investment Advisors to retain the associated records subject to 15c6-2.
The SEC is also adopting new Rule 17Ad-27 to require clearing agencies that provide a central matching service to establish written policies and procedures designed to achieve straight through processing (STP) and file an annual report about their progression in achieving STP, which will be made available to the public on Edgar.
In my discussions with industry participants there seems to be a general acceptance of the transition to the short settlement time and of course most say they will be ready for implementation. No doubt there will be some glitches short term issues to work through. The good news is we’ve gone through these types of changes before and this looks like a good step forward in providing even better liquidity to market participants.
The Complete Text from the Securities Exchange Commission may be found here:
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