SEC Shortens Settlement Cycle for Broker-Dealer Transactions

The Securities and Exchange Commission (SEC) has announced the adoption of new rule changes that will reduce 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 (T+1). This change is expected to benefit investors and reduce the credit, market, and liquidity risks faced by market participants in securities transactions.

SEC Chair Gary Gensler has expressed his support for the rulemaking, saying that it will lead to lower risk, and greater liquidity and promote efficiency, making the market plumbing more resilient, timely, orderly, and efficient. The new rule is a response to the meme stock events of 2021 and is expected to be the first of four areas that the staff recommended the Commission address.

In addition to shortening the standard settlement cycle, the final rules will improve the processing of institutional trades. The rules require broker-dealers to either enter into written agreements or establish, maintain, and enforce written policies and procedures to ensure the completion of allocations, confirmations, and affirmations as soon as technologically practicable and no later than the end of the trade date. Registered investment advisers must also make and keep records of certain securities transactions’ allocations, confirmations, and affirmations.

The final rules also add a new requirement to facilitate straight-through processing, which applies to certain types of clearing agencies that provide central matching services. Central matching service providers will be required to establish, implement, maintain, and enforce new policies and procedures to facilitate straight-through processing and submit an annual report to the Commission that describes and quantifies progress with respect to straight-through processing.

The adopting release is available on SEC.gov and will be published in the Federal Register. The final rules will become effective 60 days after publication in the Federal Register, and the compliance date for the final rules is May 28, 2024.

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Securities Attorney at Sallah Astarita & Cox | 212-509-6544 | mja@sallahlaw.com | Website | + posts

Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.

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