SEC Adopts Final Rule to Shorten Settlement Cycle to T+2 | Practical Law

SEC Adopts Final Rule to Shorten Settlement Cycle to T+2 | Practical Law

The SEC adopted a final rule that amends Rule 15c6-1(a) of the Exchange Act to shorten the standard settlement cycle for broker-dealer securities transactions from T+3 to T+2, subject to certain exceptions.

SEC Adopts Final Rule to Shorten Settlement Cycle to T+2

Practical Law Legal Update w-007-1214 (Approx. 3 pages)

SEC Adopts Final Rule to Shorten Settlement Cycle to T+2

by Practical Law Corporate & Securities
Published on 23 Mar 2017 • USA (National/Federal)
The SEC adopted a final rule that amends Rule 15c6-1(a) of the Exchange Act to shorten the standard settlement cycle for broker-dealer securities transactions from T+3 to T+2, subject to certain exceptions.
On March 22, 2017, the SEC issued a final rule that amends Rule 15c6-1(a) of the Exchange Act to shorten the settlement cycle for most broker-dealer securities transactions to two business days, or T+2. Currently, the standard settlement cycle for these transactions is three days, known as T+3. The shortening of the settlement cycle is intended to reduce certain risks, including credit risk, market risk, and liquidity risk, and, as a result, reduce systemic risk for US market participants.
The final rule prohibits a broker-dealer from effecting or entering into a contract for the purchase or sale of a security (subject to the exceptions set out below) that provides for payment of funds and delivery of securities later than the second business day after the date of the contract, unless otherwise expressly agreed to by the parties at the time of the transaction.
The final rule does not apply to:
  • Contracts for exempted securities, government securities, municipal securities, commercial paper, bankers' acceptances, or commercial bills.
  • Contracts for the sale of cash securities that priced after 4:30 p.m. ET and that:
  • Transactions in limited partnership interests that are not listed on an exchange or for which quotations are not disseminated through an automated quotation system of a registered securities association.
  • Contracts for the purchase and sale of securities that the SEC may from time to time, taking into account then existing market practices, exempt by order.
The compliance date for the final rule is September 5, 2017.