SEC Adopts Final Rules Shortening Securities Trade Settlement Cycle

The SEC adopted a final rule to shorten the standard settlement cycle for most broker-dealer transactions from two business days after the trade date ("T+2") to one business day after the trade date ("T+1"). The SEC also adopted rule amendments relating to (i) the processing of institutional trades by broker-dealers and certain clearing agencies and (ii) certain recordkeeping requirements applicable to registered investment advisers.

Final Rules

The final rules:

• amend the SEA Rule 15c6-1 ("Settlement Cycle") to shorten (i) the standard settlement cycle from T+2 to T+1 and (ii) the standard settlement cycle for firm commitment offerings priced after 4:30 p.m. EST from four business days after the trade date ("T+4") to T+2;
• adopt new SEA Rule 15c6-2 ("Same-Day Allocation, Confirmation and Affirmation"), which will require a broker-dealer to either enter into a written agreement or establish, implement, maintain and enforce written policies reasonably designed to address certain objectives related to completing allocations, confirmations and affirmations as soon as technologically practicable but no later than the end of trade date;
• adopt new SEA Rule 17Ad-27 ("Straight-Through Processing by Central Matching Service Providers") to require clearing agencies that provide a central matching service to establish, implement, maintain and enforce policies reasonably designed to facilitate straight-through processing ("STP") and file an accompanying annual report that includes updates with respect to STP and to modify SEC Regulation S-T to permit the annual report to be filed electronically; and
• modify the Investment Advisers Act Rule 204-2 ("Books and Records to be Maintained by Investment Advisers") to conform the investment adviser recordkeeping requirements to the requirements under Rule 15c6-2.

The SEC also announced its finding that the final rules did not necessitate any changes to (i) Regulation SHO, (ii) SEA Rule 10b-10 ("Confirmation of Transactions"), (iii) other rules relating to prospectus delivery, such as SA Rule 172 ("Delivery of prospectuses"), or (iv) other rules addressing financial responsibilities of broker-dealers, such as SEA Rule 15c3-3 ("Customer protection - reserves and custody of securities").

The final rules will become effective 60 days after publication in the Federal Register, and the compliance date for the rules will be May 28, 2024.

Commissioner Statements

SEC Chair Gary Gensler said that these new rules "will reduce latency, lower risk, and promote efficiency as well as greater liquidity in the markets," noting that shortening the settlement cycle was "one of the four areas the staff recommended the Commission address in response to the meme stock events of 2021."

All of the SEC Commissioners were in favor of shortening the settlement cycle to T+1, stating that it could be highly beneficial and that most of the comments received on the proposal were in favor of the shortened settlement cycle. However, the rulemaking was adopted with a 3-2 vote.

Despite their support for a shorter settlement cycle itself, SEC Commissioners Mark T. Uyeda and Hester M. Peirce raised several concerns and - due to the compliance date of May 28, 2024 rather than September 3, 2024 - voted against the final rules. Mr. Uyeda observed that "many comment letters have . . . pointed to the 2024 Labor Day weekend as the [ideal] implementation date" as that date would "have the added advantage that Canada is also moving forward with T+1 around the same time." Mr. Uyeda said that an earlier effective date represented "an imprudent rush away from a sensible transition date."