The Securities and Exchange Commission (SEC) has finalized rule changes to shorten the settlement cycle to one business day, aiming to reduce risks associated with the clearance and settlement of securities.
The transition from T+2 to T+1 was approved last year. The final rules are also expected to enhance the processing of institutional trades. The SEC requires broker-dealers to enter into written agreements or establish, maintain, and enforce written policies and procedures designed to ensure the timely completion of allocations, confirmations, and affirmations by the end of the trade date.
Additionally, registered investment advisers must maintain records of allocations, confirmations, and affirmations for specific securities transactions. A new requirement will also enhance straight-through processing for certain clearing agencies that offer central matching services.
SEC Chair Gary Gensler commented, “Today’s adoption addresses one of the four areas the staff recommended the Commission respond to following the meme stock events of 2021. Collectively, these amendments will enhance the resilience, timeliness, orderliness, and efficiency of our market plumbing.”
Market participants have until May 24, 2024, to prepare their post-trade procedures, a tight deadline that has raised concerns among firms seeking more time due to the extensive technology and operational challenges involved in the transition.
Kenneth Bentsen, CEO of SIFMA, remarked, “It is the industry, and not the regulators, who will do the work to shorten the cycle, and rushing the implementation without clear justification will only introduce additional risks when the objective is to mitigate them.”