The U.S. Securities and Exchange Commission (the “SEC”) recently proposed a rule amendment to expedite the process for settling securities transactions. At present, the standard settlement cycle for most broker-dealer securities transactions in the United States is three days after the trade date (or “T+3”). The proposal would shorten the settlement cycle to two days after the trade date (or “T+2”).
The SEC’s proposal follows a move in October 2014 by most European Union countries to change to a T+2 settlement cycle, following a requirement for T+2 settlement in the EU Regulation on Central Securities Depositories (“CSDR”). Australia and New Zealand have also recently moved to a T+2 settlement cycle.
The SEC’s proposal would amend Rule 15c6-1(a) of the U.S. Securities Exchange Act of 1934, as amended (“Rule 15c6-1(a)”), which was originally adopted in 1993 to establish T+3 as the standard settlement cycle for broker-dealer transactions in the United States. Prior to the adoption of Rule 15c6-1(a) in 1993, the settlement cycle for most securities transactions had been five business days after the trade date (“T+5”). By now shortening the standard settlement cycle to T+2, it is anticipated that there will be a further reduction in credit, market and liquidity risk for all U.S. market participants, which would reduce systemic risk for U.S. market participants. The move to a T+2 settlement cycle is consistent with the SEC’s broader focus to enhance the resilience and efficiency of the national clearance and settlement system and the role that certain systemically financial market utilities, particularly central counterparties, play in concentrating and managing risk. The SEC believes that shortening the settlement cycle yields important benefits for U.S. market participants and the national clearance and settlement system and that the benefits, as identified above, justify the associated costs.
The SEC is seeking public comment on the proposed amendment for 60 days following publication in the Federal Register. The SEC will then review the comments and determine whether to move forward with the proposed amendment to Rule 15c6-1(a).
To view the SEC's press release, please click here.
To view Proposed Rule 34-78962, please click here.