A US regulator adopts regulations to enforce one-day securities settlement

The SEC sets the compliance date as May 28, 2024.

The current T+2 cycle was first put into effect by the securities regulator in 2017.

Broker-dealer securities transactions must now be settled within one business day (T+1), according to a new rule that the Securities and Exchange Commission of the United States (SEC) has finalised. Securities trades are currently resolved two business days (T+2) following the trade.

But, according to a statement issued by the securities regulator on Wednesday, the move to T+1 will take effect 60 days after the finalised modifications are published in the US Federal Register. The SEC also disclosed May 28, 2024, as the deadline for compliance with the final regulations.

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SEC Describes New Securities Settlement Cycle’s Objectives

The modification in regulations “is aimed to assist investors and decrease the credit, market, and liquidity risks in securities transactions encountered by market participants,” the securities market supervisor stated. Furthermore, the SEC acknowledged that bouts of higher market volatility experienced in 2020 and 2021 were a factor in the revisions when it published a thorough report on the situation. The regulator stated in the study that these incidents “highlighted possible vulnerabilities in the US securities industry.”

The SEC outlined the new policy in terms of the final rules, saying that it will enhance the processing of institutional trades and establish a new need to promote straight-through processing that is applicable to specific categories of clearing agencies that offer central matching services. The SEC also pointed out that the final regulations will mandate that registered investment advisers keep records of the allocations, confirmations, and affirmations for specific securities transactions.

According to the SEC, “The final rules will oblige central matching service providers to establish, implement, maintain and enforce new policies and procedures reasonably designed to facilitate straight-through processing and oblige them to submit an annual report to the Commission that describes and quantifies progress with respect to straight-through processing.”

The Transition of Securities Settlement from T+5 to T+1

When the SEC established a policy requiring broker-dealers to settle securities transactions within three business days (T+3), it made the initial steps towards standardising the securities settlement cycle. Securities transactions at the time were completed in five business days (T+5).

After reducing the usual settlement cycle from T+3 to T+2, the regulator began enforcing the T+2 practise in 2017.

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