- SEC requests comment on a proposal to reduce risks in clearance and settlement.
- Would shorten standard settlement cycle for most B/D transactions in securities from two business days after trade date (T+2) to one business day after trade date (T+1).
- Designed to reduce the credit, market, and liquidity risks in securities transactions.
- Chair Gensler, commissioners Peirce, Herren Lee, and Crenshaw supported proposal.
Purpose for Proposal
- Proposal aims to protect investors, reduce risk, and increase operational efficiency.
- Cited recent episodes of market volatility, COVID-19 pandemic, and meme stocks.
- In the future, maybe beneficial to further shorten standard settlement cycle further.
Shortened Settlement Cycle Proposal
- Exchange proposed to amend 17 CFR 240.15c6-1 (SEA Rule 15c6-1), settlement cycle.
- Shortened the standard settlement cycle for most B/D transactions from T+2 to T+1.
- Repealed T+4 settlement cycle for firm commitment offerings priced after 4:30 p.m.
B/D and IA Requirements
- Improved processing of institutional trades by proposing new requirements for B/Ds and registered IAs; new rules intended to improve the rate of same-day affirmations.
- New 17 CFR 240.15c6-2 would shorten process of confirming and affirming trade data needed to prepare transaction for settlement so it can complete by end of trade date.
- Prohibit B/Ds from entering into contracts with institutional customers unless contracts require parties complete allocations, confirmations, affirmations by end of trade date.
- Amended IAA Rule 204-2 (17 CFR 275.204-2), required registered IA contract parties per 15c6-2 to keep records of confirmations received, allocations, affirmations sent.
- Solicited comments on how best to further advance beyond T+1; any challenges associated with and potential paths to achieving a same-day settlement cycle (T+0).
- Comment requested on Regulation SHO (17 CFR 242); financial responsibility rules for B/Ds; Requirements in 17 CFR 240.10b-10; obligations related to prospectus delivery.
- Requested comment on the proposed compliance date for proposal of 31 March 2024.
- SIFMA issued statement from president and CEO Kenneth Bentsen Jr. on the proposal.
- Followed SIFMA release of plan to accelerate securities settlements, see #128436.
- Said acceleration would improve market resiliency, benefit investors, reduce margin.
- Welcomed proposal supporting this acceleration of settlement cycle, look forward to reviewing and commenting as industry continues work to follow their roadmap to T+1.
- Commission proposed to require compliance with each rule change by 31 March 2024.
- Comments on proposal should be received by 30 days after pending publication in the federal register, or by 11 April 2022 (60 days after issuance), whichever is later.