SEC Proposes Rule Amendment to Expedite Securities Transaction Settlement Process

October 13, 2016

The Securities and Exchange Commission (“SEC”) recently proposed an amendment to Rule 15c6-1(a) under the Securities Exchange Act of 1934 (“Exchange Act”) to shorten the standard settlement cycle for most broker-dealer securities transactions from three business days after the trade date (“T+3”) to two business days after the trade date (“T+2”).

The proposed amendment would prohibit a broker-dealer from entering into a contract for the purchase or sale of a security (other than an exempted security, government security, municipal security, commercial paper, bankers’ acceptances, or commercial bills) that provides for payment of funds and delivery of securities later than two business days after the trade date, unless otherwise expressly agreed to by the parties at the time of the transaction.

Securities that, in general, currently settle on a settlement cycle less than T+3, including options and certain mutual funds would not be affected by the proposed amendment. All transactions in other securities, subject to the exceptions enumerated in the rule, would need to settle by the T+2 settlement date. Accordingly, the proposed amendment would require exchange-traded funds, closed-end funds, private funds and mutual funds executing through brokers and currently settling on a T+3 basis to revise their settlement timeframes.

The proposed amendment would affect compliance with existing regulatory obligations that are tied to settlement date. For example, the proposed amendment would reduce the timeframes for compliance with various obligations under Regulation SHO and the SEC’s financial responsibility rules for broker-dealers under the Exchange Act, including Rules 15c3-1 and 15c3-3.

The SEC did not set a firm compliance date in its proposal, but indicated that it will consider the industry-supported target of September 5, 2017 when setting a final compliance date.


If you have any questions regarding the matters covered in this memo, please contact any of the partners and counsel listed below or your primary attorney in Seward & Kissel’s Investment Management Group.