The U.S. Securities and Exchange Commission (SEC) on Wednesday proposed a rule amendment to shorten the standard settlement cycle for most broker-dealer transactions from three business days after the trade date (T+3) to two business days after the trade date (T+2).
The proposals aim to reduce the various risks that come with unsettled transactions, such as credit, market, and liquidity risk.
“Today’s proposal to shorten the standard settlement cycle is an important step in the SEC’s ongoing efforts to enhance the resilience and efficiency of the U.S. clearance and settlement system,” said Mary Jo White, SEC chairwoman, in a news release. “The benefits of a shortened settlement cycle should extend to all investors, not just those directly involved in the trading, clearing and settling of securities transactions.”
The proposals will go out for a 60-day comment period after their publication in the Federal Register.
The U.S. Securities Industry and Financial Markets Association (SIFMA) applauded the move, noting that it will help the industry meet its goal of cutting the settlement cycle.
“The SEC’s proactive efforts to update its rule will create the regulatory certainty the industry needs to move forward in its goal of achieving a T+2 settlement cycle by September 5, 2017,” said Kenneth Bentsen, Jr., president and CEO of SIFMA.
“Shortening the time it takes to settle a trade will bring numerous benefits to investors and the U.S. financial system, including reducing operational risk, enhancing the overall efficiency of U.S. securities markets and aligning the U.S. with other international markets. This is truly a win for investors, the industry and all market participants,” he added.
The Canadian investment industry is aiming to follow the U.S. lead and shorten the domestic settlement cycle on the same timetable as the U.S. Earlier this year, the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) proposed amendments to facilitate the move.