SEC Adopts Shorter Settlement Cycle for Securities Transactions
The Securities and Exchange Commission adopted an amendment to shorten the standard settlement cycle for most broker-dealer securities transactions by one business day.
Currently, the standard settlement cycle for these transactions is three business days, known as T+3. The amended rule shortens the settlement cycle to two business days, T+2.
Generally, this change would mean that when an investor buys a security, the brokerage firm must receive payment from the investor no later than two business days after the trade is executed. When an investor sells a security, the investor must deliver the investor’s security to the brokerage firm no later than two business days after the sale. For example, if an investor sells shares of a particular stock on Monday, the transaction would settle on Wednesday.
The amended rule would apply the T+2 settlement cycle to the same securities transactions currently covered by the T+3 settlement cycle. These include transactions for stocks, bonds, municipal securities, exchange-traded funds, certain mutual funds, and limited partnerships that trade on an exchange.
The SEC says that the amended rule is designed to enhance efficiency, reduce risk, and ensure a coordinated and expeditious transition by market participants to a shortened standard settlement cycle.
“As technology improves, new products emerge, and trading volumes grow, it is increasingly obvious that the outdated T+3 settlement cycle is no longer serving the best interests of the American people,” said SEC acting chairman Michael Piwowar. “The SEC remains committed to ensuring that U.S. securities regulation is reflective of modern times, and in shortening the settlement cycle by one day we aim to increase efficiency and reduce risk for market participants.”
To assist broker-dealers, other securities professionals and the investing public in their preparation for the implementation of a T+2 settlement cycle, the SEC has established an e-mail address – T2settlement@sec.gov – for the submission of inquiries to SEC staff.
Broker-dealers will be required to comply with the amended rule beginning on Sept. 5, 2017.
