SEC Proposes Rule Amendment to Shorten Settlement Cycle to T+2

The Securities and Exchange Commission (“SEC”) has approved a proposed amendment to Rule 15c6-1(a) of the Exchange Act of 1934 to shorten the standard settlement cycle for most broker-dealer securities transactions from three business days after the trade date (T+3) to two business days after the trade date (T+2). The proposed amendment is designed to reduce the risks that arise from the value and number of unsettled securities transactions prior to the completion of settlement, including credit, market, and liquidity risk directly faced by U.S. market participants, which should in turn, enhance efficiency and reduce risk, consistent with a multi-stakeholder process underway to move to a shortened settlement cycle.

As proposed, the amendment would prohibit a broker-dealer from entering 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 two business days after the trade date, unless otherwise expressly agreed to by the parties at the time of the transaction.

SEC Chair Mary Jo White stated that the “… proposal to shorten the standard settlement cycle is an important step in the SEC’s ongoing efforts to enhance the resilience and efficiency of the U.S. clearance and settlement system”, and “the benefits of a shortened settlement cycle should extend to all investors, not just those directly involved in the trading, clearing and settling of securities transactions.”

The SEC will seek public comment on the proposed amendment to Rule 15c6-1(a) for 60 days following the publication in the Federal Register.  The SEC will then review the comments and determine whether to adopt the proposed amendment to Rule 15c6-1(a) as a final rule.