On February 15, 2023, the SEC adopted rule amendments and new rules to reduce risk in clearance and settlement of securities transactions. The amendments to Rules 15c6-1(a) and 15c6-1(c) will shorten the standard settlement cycle for most securities transactions from two business days after the trade date (T+2) to one (T+1) and shorten the standard settlement cycle for firm commitment offerings priced after 4:30 p.m. from four business days after trade date (T+4) to T+2.

Shortening the time between the execution of a securities transaction and its settlement reduces risk, promotes investor protection, and increases operational and capital efficiency, according to the Commission. The SEC cited recent episodes of market volatility in March 2020 following the outbreak of COVID-19 and the January 2021 trading of meme stocks as having highlighted vulnerabilities in the markets that can be mitigated by a shortened settlement cycle and improvements in institutional trade processing.

New Rule 15c6-2(a) will improve the processing of institutional trades through new requirements for broker-dealers and registered investment advisers related to same-day affirmations and facilitate straight-through processing through new requirements applicable to clearing agencies that are central matching service providers (CMSPs).

The final rules will become effective 60 days following the date of publication of the adopting release in the Federal Register and the compliance date for each of the final rules is May 28, 2024. The adoption of the rules did not come without controversy. Commissioners Hester Peirce and Mark Uyeda rejected the proposal, both stating that the securities industry should have more time to adopt the rules and stated that they would have supported the adopted rules if the compliance date was extended until September 2024 consistent with the timing of a change by Canadian regulators to T+1. Industry participants are well advised to immediately begin preparations for these changes – if Commissioners Peirce and Uyeda are correct, there may not be sufficient time for implementation and industry-wide testing.