The Securities and Exchange Commission today voted to propose a rule amendment 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.
“Today’s 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,” said SEC Chair Mary Jo White. “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 proposal amends Rule 15c6-1(a) of the Exchange Act of 1934.
The public comment period will remain open for 60 days following publication of the proposing release in the Federal Register.
* * *
Expedited Process for Settling Securities Transactions
SEC Open Meeting
Sept. 28, 2016
The Commission will consider whether to propose a rule amendment to expedite the process for settling securities transactions. Currently, the standard settlement cycle for most broker-dealer securities transactions is three business days, known as T+3. The proposal would shorten the settlement cycle to two days, or T+2. The proposed amendment is designed to enhance efficiency and reduce risk, consistent with a multi-stakeholder process underway to move to a shortened settlement cycle.
The Commission’s proposal would amend Rule 15c6-1(a) of the Exchange Act to shorten the standard settlement cycle for broker-dealer transactions from T+3 to T+2, subject to certain exceptions.
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.
The proposed amendment is designed to reduce a number of risks that arise from the value and number of unsettled securities transactions prior to the completion of settlement. Shortening the standard settlement cycle to T+2 could result in a further reduction of credit, market, and liquidity risk for all U.S. market participants, which in turn could reduce systemic risk for U.S. market participants.
The Commission originally adopted Exchange Act Rule 15c6-1 in 1993 to establish a standard settlement cycle for most broker-dealer securities transactions (subject to the exceptions provided in the rule), effectively shortening the settlement cycle for most securities transactions from five business days to three business days after the trade date (T+3). The Commission cited a number of reasons for standardizing and shortening the settlement cycle, which included, among others, reducing credit and market risk exposure related to unsettled trades, reducing liquidity risk among derivatives and cash markets, encouraging greater efficiency in the clearance and settlement process, and reducing systemic risk for the U.S. markets.
The Commission will seek public comment on the proposed amendment to Rule 15c6-1(a) for 60 days following publication in the Federal Register. The Commission will then review the comments and determine whether to adopt the proposed amendment to Rule 15c6-1(a) as a final rule.