JCAP101.com

“For everyday investors who sell their stock on a Monday, shortening the settlement cycle will allow them to get their money on Tuesday. Shortening the settlement cycle also will help the markets because time is money and time is risk. It will make our market plumbing more resilient, timely, and orderly. Further, it addresses one of the four areas the staff recommended the Commission address in response to the GameStop stock events of 2021.”

On February 15, 2023, the SEC adopted a set of rule amendments and new rules to facilitate the shortening of the standard settlement cycle for most broker-dealer transactions from two business days after the trade date (or T+2) to one business day after the trade date (or T+1). The new rules also improve the processing of institutional trades by establishing new processing and recordkeeping requirements for broker-dealers and registered investment advisors, respectively. Further, the rules established a new requirement to facilitate straight-through processing by central matching service providers.

The SEC originally established a standard settlement cycle of three business days (or T+3) for most securities transactions in 1993, shortening the prevailing practice at the time of settling securities transactions within five business days of trade date. In 2017, the SEC shortened the standard settlement cycle from T+3 to T+2. While previous transitions were successful, transition to a shorter settlement cycle may lead to a short-term uptick in settlement fails and challenges to a small segment of market participants. Despite such expected issues, the SEC has seen with each transition that shortening the settlement cycle benefits investors and reduces the credit, market, and liquidity risks in securities transactions faced by market participants.

Since the SEC voted to establish a T+1 settlement cycle in the U.S., SEC staff has been monitoring on a continuous basis the efforts of market participants to prepare for the shorter settlement cycle and coordinating with regulatory authorities in North America, Europe, Asia, and other jurisdictions around the world. In March, to help market participants prepare for the upcoming move to T+1, SEC staff published a risk alert ⊗ (PDF), responses to frequently asked questions ⊗, and an Investor Bulletin ⊗.

As the compliance date of May 28, 2024, approaches, the Commission will continue its efforts to help facilitate a successful transition.