On March 22, 2017, the Securities and Exchange Commission adopted an amendment to Rule 15c6-1(a) of the Securities Exchange Act of 1934 to shorten the standard settlement cycle for most broker-dealer securities transactions from three business days (T+3) after the trade date to two business days (T+2) after the trade date.1 This shortened settlement cycle is meant to enhance efficiency and reduce the credit, market, and liquidity risks faced by U.S. market participants.
Broker-dealers will be required to comply with the amended rule beginning on September 5, 2017.
The SEC adopted Rule 15c6-1(a) in 1993 to establish a standard settlement cycle for most broker-dealer securities transactions. Rule 15c6-1(a) previously provided that a broker or dealer will not enter into a contract for the purchase or sale of a security (other than an exempted security, government security, municipal security, commercial paper, bankers' acceptances, or commercial bills) that provides for payment of funds and delivery of securities later than three business days after the trade date, unless otherwise expressly agreed to by the parties at the time of the transaction. The new amendment changes the previous rule’s reference from three business days to two business days.
The SEC believes that this amendment to Rule 15c6-1(a) requiring a T+2 settlement cycle will reduce credit and market risk from unsettled transactions, reduce liquidity risk among derivatives and cash markets, promote greater efficiency in the settlement process, and reduce systematic risk for the U.S. markets. Further, the implementation of the T+2 settlement cycle harmonizes the U.S. market with most European and certain Asian-Pacific markets that have already moved to the T+2 settlement cycle.
Impact on Other SEC Rules
As a result of the rule change, certain other rules that are keyed off of the settlement date will also be affected, including:
- certain aspects of Regulation SHO, such as the time frame by which a fail-to-deliver must be closed out under Rule 204 and the time frame in which a loaned security must be recalled in order to mark such order as a “long” sale under Rule 200(g);
- certain financial responsibility rules under the Exchange Act, such as the “prompt” delivery of shares and transmission of funds, and the time period to close out a customer transaction under Rule 15c3-3;
- delivery of written trade confirmations pursuant to Rule 10b-10; and
- timing of prospectus delivery obligations.
Looking beyond the September 2017 move to T+2, the SEC has also requested that its staff complete a report by September 2020 analyzing the potential impact of a further shift to a T+1 settlement cycle.