The US Securities and Exchange Commission (SEC) has affirmed that the US market will move to a one-day settlement cycle (T+1) by May 2024.
The affirmation was made at an Open Meeting conducted by the SEC today (15 February).
The rule changes will shorten the standard settlement cycle for most broker-dealer transactions in securities from two business days after the trade date (T+2) to T+1.
The move will come seven years after T+2 first became the market standard in 2017.
The revised settlement compression time of T+1 for the US market was officially proposed by the SEC in February 2022. It ensures securities trades are cleared and settled within one working day.
In addition to shortening the standard settlement cycle, the final rules will improve the processing of institutional trades and require a broker-dealer to either enter into written agreements or establish, maintain and enforce written policies and procedures.
This will be put in place to ensure the completion of allocations, confirmations and affirmations — no later than the end of trade date.
The final rules also require registered investment advisers to make and keep records of the allocations, confirmations and affirmations for certain securities transactions.
Furthermore, the rules add a new requirement to facilitate straight-through processing (STP), which applies to certain types of clearing agencies that provide central matching services.
The final rules will require central matching service providers to establish, implement, maintain and enforce new policies and procedures reasonably designed to facilitate STP.
At the Open Meeting SEC Chair Gary Gensler said: “I support this rule-making because it will reduce latency, lower risk and promote efficiency as well as greater liquidity in the markets."
Pete Tomlinson, director of post trade at the Association for Financial Markets in Europe (AFME), offers a European perspective on the news.
He says: “The May 2024 goal for moving to one-day settlement in the US is ambitious and will be a significant challenge for all market participants globally. However, adopting T+1 settlement in Europe will be significantly more challenging, given the fragmented nature of European markets and the greater operational, structural and regulatory complexity.
He adds: “Further analysis is required across the industry to quantify the costs and benefits, and the changes required to the current operating environment to facilitate such a move. AFME will work closely with all stakeholders to ensure a collaborative industry approach to this topic.”
At the same meeting, the SEC proposed a significant transformation of Rule 206(4)-2 (the Custody Rule) under the Investment Advisers Act of 1940.
The refit is designed to enhance protections of customer assets managed by registered investment advisers. If adopted, the changes would amend certain related recordkeeping and reporting obligations.
Commenting on this, Gensler said: "Through this expanded custody rule, investors working with advisers would receive the time-tested protections that they deserve for all of their assets, including crypto assets."
