US SEC issues formal proposal to move to T+1 settlement

The Securities and Exchange Commission today voted to propose rule changes to reduce risks in the clearance and settlement of securities, including by shortening the standard settlement cycle for most broker-dealer transactions in securities from two business days after the trade date (T+2) to one business day after the trade date (T+1). The proposed changes are designed to reduce the credit, market, and liquidity risks in securities transactions faced by market participants and U.S. investors.

“These proposed amendments to the securities clearing and settling process, if adopted, could lower risk to the financial system and drive greater efficiencies in the markets,” said SEC Chair Gary Gensler. “First, these amendments would shorten the standard settlement cycle. As the old saying goes, time is money. Shortening the settlement cycle should reduce the amount of margin that counterparties would need to post with clearinghouses. Second, these changes would require affirmations, confirmations, and allocations to take place as soon as technologically practicable on trade date (“T+0”). Finally, the release would require clearing agencies that provide central matching services to have policies and procedures to facilitate straight-through processing — i.e., fully automated transactions processing.”

In addition to shortening the standard settlement cycle, the proposal includes rules directed at broker-dealers and registered investment advisers to shorten the process of confirming and affirming the trade information necessary to prepare a transaction for settlement so that it can be completed by the end of trade date. Further, the proposal includes a new requirement to facilitate straight-through processing, which would apply to certain types of clearing agencies that provide central matching services. Central matching service providers help facilitate the processing of institutional trades between broker-dealers and their institutional customers. The proposed rule would require new policies and procedures directed to straight-through processing and require an annual report on progress with the process.

With the goal of shortening the settlement cycle further, the proposal solicits comments on challenges associated with and potential paths to achieving a same-day settlement cycle.

The public comment period will remain open for 60 days following publication of the proposing release on the SEC’s website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.

In a statement, the Investment Company Institute’s president and CEO, Eric pan, said: “The SEC’s proposal rightly recognizes that moving to T+1 is the correct step for our financial system, and now we need to make sure the details are right. Some of the proposed reporting requirements are different from the industry’s current requirements, and we’ll need to carefully assess how these differences could affect the move to T+1.

“ICI, working with SIFMA and DTCC, published a roadmap that lays out exactly what market participants need to do to move to T+1 by 2024. Moving to T+1 will mitigate investors’ risk exposure during market volatility and make our financial system more resilient. We look forward to commenting on the SEC proposal and working with the industry on moving to T+1 for the benefit of all investors.”

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