SEC adopts T+2 settlement cycle

Various global markets have made attempts to shorten their settlement cycles in recent months and the US has now followed suit.

The Securities and Exchange Commission (SEC) has adopted an amendment to shorten the standard settlement cycle for most broker-dealer securities to two business days.

The move is designed to reduce credit, market and liquidity risks and enhance efficiency of transactions.

In addition, the shorter settlement timeframe is aimed at promoting financial stability and aligning the US with other T+2 settlement markets across the globe.

The previous rule for such transactions, known as T+3, stood at three business days.

Broker-dealers will be required to comply with the amended rule from 5 September 2017.

“As technology improves, new products emerge, and trading volumes grow, it is increasingly obvious that the outdated T+3 settlement cycle is no longer serving the best interests of the American people,” said SEC acting chairman Michael Piwowar.  

“The SEC remains committed to ensuring that US securities regulation is reflective of modern times, and in shortening the settlement cycle by one day we aim to increase efficiency and reduce risk for market participants,” Piwowar added.

Other industry bodies including the Depository Trust & Clearing Corporation (DTCC), ICI and SIFMA, on behalf of the T+2 Industry Steering Committee, have welcomed the move.

“We are pleased to see the SEC take important action to align the U.S. settlement cycle with other key markets around the globe,” said Murray Pozmanter, head of clearing agency services, global operations and client services at the DTCC.

“This critical step will ensure that market participants are working towards a common goal, which will ultimately reduce risks and costs for the benefit of the industry.”

The move by the SEC follows attempts by other global markets to reduce the timespan of their settlement cycles.

Earlier this year, the Japan Securities Dealers Association (JSDA) revealed its intentions shorten the settlement cycle of Japanese Government Bonds (JGBs) from T+2 to T+1 on 1 May 2018. 

In addition the Saudi Arabian Stock Exchange (Tadawul) published draft rules for the implementation of a T+2 settlement cycle with a targeted implementation date of Q2 2017. 

«