On February 15, 2023, the Securities and Exchange Commission adopted rule changes that include shortening the standard settlement cycle for most broker-dealer transactions in securities from two business days after the trade date (T+2) to one (T+1). The SEC believes reducing time between the execution of a securities transaction and its settlement reduces risk, promotes investor protection, and increases operational and capital efficiency. The SEC shortened the standard settlement cycle for most securities transactions from T+3 to T+2 in 2017. Highlights of the rule changes are summarized below.
New Rules for Broker-Dealers
The Commission amended paragraph (a) of 17 CFR 240.15c6-1 under the Securities Exchange Act of 1934 to shorten the standard settlement cycle for most broker-dealer transactions from T+2 to T+1.
The Commission amended paragraph (b) of Rule 15c6-1 to exclude security-based swaps from the requirements under paragraph (a) of the rule, and amended paragraph (c) of Rule 15c6-1 to shorten the standard settlement cycle for firm commitment offerings priced after 4:30PM Eastern Time from four business days after the trade date (“T+4”) to T+2.
The Commission adopted a new rule under the Exchange Act at 17 CFR 240.15c6-2 (“Rule 15c6- 2”) for transactions that require completion of the allocation, confirmation, or affirmation process. Rule 15c6-2 requires a broker-dealer to either enter into written agreements as specified in the rule or establish, maintain, and enforce written policies and procedures reasonably designed to address certain objectives related to completing allocations, confirmations, and affirmations as soon as technologically practicable and no later than the end of trade date. For a broker-dealer that opts to establish, maintain, and enforce written policies and procedures pursuant to Rule 15c6-2(a), the new rules establish certain guidelines as to what such policies and procedures must include.
New Rules for Central Matching Service Providers (CMSPs)
New Rule 17Ad-27(a), as adopted, will require a clearing agency that provides a central matching service (i.e., a CMSP) to establish, implement, maintain, and enforce written policies and procedures reasonably designed to facilitate straight-through processing of securities transactions at the clearing agency. Adopted rule changes will also require a CMSP to submit an annual report to the SEC that provides (i) the CMSP’s current policies and procedures for facilitating straight-through processing; (ii) the CMSP’s progress in facilitating straight-through processing during the twelve-month period covered by the report; (iii) the steps the CMSP intends to take to facilitate straight-through processing during the twelve-month period that follows the period covered by the report; and (iv) a quantitative presentation of data that includes specified metrics and organized in a specified manner.
New Rules for Registered Investment Advisers
The SEC amended Rule 204-2(a)(7)(iii) under the Advisers Act to require investment advisers registered or required to be registered under Section 203 of the Advisers Act to make and keep true, accurate and current certain records with respect to any transaction that is subject to the requirements of Rule 15c6-2(a), specifically those transactions where a broker-dealer engages in the allocation, confirmation, or affirmation process with another party or parties to achieve settlement of a securities transaction that is subject to the requirements of § 240.15c6-1(a). The required records stipulated include each confirmation received, and any allocation and each affirmation sent or received, with a date and time stamp for each allocation and affirmation that indicates when the allocation and affirmation was sent or received.
Effective and Compliance Dates
The final rules will become effective on May 5, 2023. The compliance date for each of the final rules is May 28, 2024.
The full text of the rule changes is available at https://www.sec.gov/rules/final/2023/34-96930.pdf