The Securities and Exchange Commission (SEC) introduced a transformative rule to accelerate the settlement cycle for securities transactions, Amendments to Rule 15c6-1 under the Securities Exchange Act of 1934 (“Exchange Act”) from two days (T+2) to one (T+1). Additionally, the SEC has established New Rule 15c6-2, requiring broker-dealers to implement written agreements or policies to ensure timely completion of allocations, confirmations, and affirmations by the end of the trade date. These rules represent a significant shift in the landscape of securities trading. This email notice provides an overview of the T+1 rules, discusses industry preparedness leading up to the implementation deadline, outlines remaining work efforts for US security dealers, and touches on the anticipated post-implementation impact. The compliance date of the amendments and new rules discussed above is May 28, 2024.
Rule Overview:
The SEC Final Rule on T+1 Settlement Cycle mandates a reduction in the settlement cycle for most US securities transactions from T+2 to T+1. The primary objective is to enhance market efficiency, reduce counterparty risk, and align the US market with international standards. The rule sets the stage for a more agile and secure securities settlement processes. In addition, compliance requires security dealers to develop and implement written customer agreements and revised policies and procedures.
Industry Preparedness:
As the industry braces for the T+1 settlement cycle, market participants are actively enhancing their infrastructure, systems, and operational processes. Firms, large and small, are investing in technology upgrades, reengineering workflows, and training personnel to ensure a smooth transition to the accelerated settlement cycle. Proactive engagement with exchanges, clearing organizations and customers are required to achieve rule compliance by May 28, 2024
Remaining Work Efforts:
While significant strides have been made in industry preparations, US banks are actively engaged in finalizing key aspects of their operational frameworks to meet the T+1 settlement cycle requirement. This involves comprehensive testing of systems, refining risk management strategies, and addressing any unforeseen challenges that may arise during the implementation period. Effective escalation and remediation procedures are critical to navigate the initial phase in this new environment.
Post-Implementation Impact and Remaining Work:
Post-implementation, the industry will closely monitor the impact of the T+1 settlement cycle on various facets of securities trading. Continuous assessment, monitoring and well designed feedback mechanisms will be crucial in refining processes and addressing any issues caused by operating in a T+1 environment. US securities firms and regulators must maintain close contact to address any unanticipated challenges and provide guidance on sustained compliance with the new settlement cycle.
In conclusion, the SEC's Final Rule on T+1 Settlement Cycle represents a pivotal moment in the evolution of securities trading in the US. As the industry rallies to meet the implementation deadline, ongoing collaboration, adaptability, and a commitment to continuous improvement will be essential for navigating the post-implementation landscape successfully.