In order to reduce risks in the clearance and settlement of securities, the Securities and Exchange Commission has finalized rule changes that will cut the settlement cycle down to one business day.
Votes were taken a year ago to change the time from T+2 to T+1.
The SEC says that the final rules will also make it easier to process institutional trades by requiring a broker-dealer to either sign a written agreement or set up, maintain, and enforce written policies and procedures that are “reasonably designed to ensure that allocations, confirmations, and affirmations are completed as soon as technology allows and no later than the end of trade date.”
The rules also say that registered investment advisers must make and keep records of allocations, confirmations, and affirmations for certain securities transactions.
Lastly, there will be a new requirement for certain types of clearing agencies that offer central matching services to make straight-through processing easier.
Gary Gensler, head of the SEC, says:
“Today’s adoption addresses one of the four areas the staff recommended the Commission address in response to the meme stock events of 2021. Taken together, these amendments will make our market plumbing more resilient, timely, orderly, and efficient.”
The deadline for market participants to get their post-trade procedures in order is May 24, 2004.
Firms will be alarmed by the short deadline, since they had been asking for more time because the switch will be so hard in terms of technology and operations.
The head of Sifma, Kenneth Bentsen, says:
“It is the industry, and not the regulators, who will do the work to shorten the cycle and rushing the implementation for no apparent reason will only add risk when the underlying goal is to mitigate risk.”
