When scheduling settlements of registered securities to be paid in cash, issuers and broker-dealers should be wary of requests from investors to extend the settlement period beyond the fifth business day after the pricing date (“T+5”). Section 220.8(b)(1) of Regulation T (12 C.F.R. § 220) requires that a creditor (a broker-dealer) obtain full cash payment for nonexempted securities from the customer within five business days of the pricing date for the securities. Section 220.8(b)(2) of Regulation T provides an exemption for payment delays of up to 35 calendar days, if caused by the mechanics of the transaction and not related to the customer’s willingness or ability to pay. That exemption is construed as encompassing, for example, settlement extensions caused by market mechanics or mechanics relating to the security itself, such as certain types of pass-through asset-backed securities, which have resulted in a practice of delayed delivery. Settlements exceeding T+5 and not within an exemption provided by Regulation T may constitute prohibited extensions of credit.

Remedies for violations of Regulation T are administered by the Securities and Exchange Commission and the Financial Industry Regulatory Authority, Inc., and such violations could be cited in a FINRA deficiency letter.