The Securities and Exchange Commission (SEC) announced Wednesday that it had adopted an amendment to shorten by one business day the standard settlement cycle for most broker-dealer securities transactions. The standard settlement cycle of three business days (known as T+3), which has been in place since the mid 1990s, will be shortened to two business days, and hence become T+2.
While some may consider the rule mundane or even “deep in the weeds”, the SEC warned that: “Unsettled trades pose risks to our financial markets, especially when market prices plunge and trading volumes soar. The longer the period from trade execution to settlement, the greater the risk that securities firms and investors hit by sizable losses would be unable to pay for their transactions.”
Commenting further on the amendment, SEC Acting Chairman Michael Piwowa said, “As technology improves, new products emerge, and trading volumes grow, it is increasingly obvious that the outdated T+3 settlement cycle is no longer serving the best interests of the American people.” He added that the aim of the amendment was to increase efficiency and reduce risk for market participants.
Broker-dealers will be required to comply with the amended rule beginning on Sept. 5, 2017.