On March 22, 2017, the U.S. Securities and Exchange Commission (SEC) announced the unanimous passage of an amendment to Rule 15c6-1(a), shortening the standard settlement cycle for most broker-dealer securities transactions from three business days (T+3) to two business days (T+2). The new T+2 settlement cycle will apply to the same securities transactions covered by T+3, including transactions for stocks, bonds, municipal securities, exchange-traded funds, certain mutual funds traded through a broker, and limited partnerships that are not listed on an exchange; provided, however, parties still retain the right to expressly agree to a longer settlement cycle pursuant to the “override provision” of Rule 15c6-1(a). Sales of securities exempt from the T+2 settlement cycle are exempted securities, government securities, municipal securities, commercial paper, banker’s acceptances and commercial bills.
The amendment also does not apply to contracts for the sale of securities for cash that are priced after 4:30 p.m. Eastern time on the date of pricing of the securities that are either (i) sold pursuant to a firm commitment underwritten offerings registered under the Securities Act of 1933 by the issuer to an underwriter or (ii) sold to an initial purchaser by a broker-dealer participating in such offering. Such firm commitment offerings remain outside of the settlement cycle pursuant to Rule 15c6-1(c) and (d) as long as the alternative settlement date is expressly agreed to by the managing underwriter and issuer for all securities sold in the offering at the time of the transaction.
The SEC states that this amendment aligns with the SEC’s desire that regulations reflect the technology of modern times. Shortening the settlement cycle is aimed to increase efficiency and reduce risk for market participants, including the risk of a counterparty defaulting.
Compliance by broker-dealers with the T+2 amendment is not required until September 5, 2017, consistent with the Industry Steering Committee’s target implementation date. In order to assist compliance preparation, inquiries regarding the amendment may be submitted to the SEC staff at T2settlement@sec.gov.
The SEC press release announcing the amendment and the release adopting the change to Rule 15c6-1(a) are available at https://www.sec.gov/news/press-release/2017-68-0 and https://www.sec.gov/rules/final/2017/34-80295.pdf, respectively.