<p>The United States Securities and Exchange
Commission (SEC) has finalized a change to its policy and now requires broker-dealer securities transactions to be settled within one business day (T+1).
Currently, securities transactions are settled within two
businesss days (T+2) after the trade is made. </p><p>However, the securities regulator in <a href=”https://www.sec.gov/news/press-release/2023-29″ target=”_blank” rel=”follow”>a statement</a>
released on Wednesday announced that the switch to T+1 will become effective 60 days
after the finalized changes are published in the US Federal Register. SEC also revealed the
<a href=”https://www.financemagnates.com/terms/c/compliance/” class=”terms__main-term” id=”569f58ee-534c-44f0-a7cd-f55b0f9a2b2a” target=”_blank”>compliance</a> date for the final rules as May 38, 2024.</p><blockquote class=”twitter-tweet”><p lang=”en” dir=”ltr”>Today the Commission adopted rule changes to shorten the standard settlement cycle for most broker-dealer transactions in securities from two business days to one. The change is designed to benefit investors and reduce credit, market, and liquidity risks.</p>— U.S. Securities and Exchange Commission (@SECGov) <a href=”https://twitter.com/SECGov/status/1625900721123078145?ref_src=twsrc%5Etfw”>February 15, 2023</a></blockquote><p>SEC Explains Goal of New Securities Settlement Cycle </p><p>According to the securities market
supervisor, the change in rules “is designed to benefit investors and reduce
the credit, market, and liquidity risks in securities transactions faced by
market participants.” Furthermore, the SEC in its <a href=”https://www.sec.gov/rules/final/2023/34-96930.pdf” target=”_blank” rel=”follow”>detailed document</a> on the
development noted that the changes were informed in part by episodes of increased
market volatility experienced in 2020 and 2021. These episodes
“highlighted potential vulnerabilities in the US securities market,” the
regulator wrote in the document.</p><p>Speaking further on the final rules, <a href=”https://www.financemagnates.com/tag/sec/” target=”_blank” rel=”follow”>SEC</a> explained that the new policy will improve the processing of institutional
trades and will add a new requirement to facilitate straight-through processing
that applies to certain types of clearing agencies that provide central
matching services. In addition, the SEC noted that the final rules
will require registered investment advisers to make and preserve records of the
allocations, confirmations and affirmations for certain securities
transactions.</p><p>“The final rules will require central
matching service providers to establish, implement, maintain, and enforce new
policies and procedures reasonably designed to facilitate straight-through
processing and require them to submit an annual report to the Commission that
describes and quantifies progress with respect to straight-through processing,”
SEC explained.</p><p>The Securities Settlement Journey from T+5 to T+1</p><p>The SEC took its first steps towards
standardizing the securities <a href=”https://www.financemagnates.com/terms/s/settlement/” class=”terms__secondary-term” id=”2dc6d2c7-1626-4ecf-811e-4c1aabbdb280″ target=”_blank”>settlement</a> cycle in 1993 when it came up with the
policy that required broker-dealers to settle securities transactions within
three business days (T+3). At the time, securities transactions were settled
within five business days (T+5). </p><p>The regulator started enforcing the
current T+2 practice in 2017 after it shortened the standard settlement cycle
from T+3. </p>
This article was written by Solomon Oladipupo at www.financemagnates.com.
