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.
FACT SHEET
Expedited Process for Settling Securities Transactions
SEC Open Meeting
Sept. 28, 2016
Action
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.
Highlights
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.
Background
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.
What's Next
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.