U.S. Securities and Exchange Commission (SEC) rule changes that facilitate the industry’s ability to achieve a two-day settlement cycle (T+2) drew praise from several industry groups this week.
The revised SEC rule establishes a standard settlement timeframe of two days for U.S. equity, corporate and municipal bond, and unit investment trust (UIT) trades starting September 5, 2017. The Depository Trust and Clearing Corporation (DTCC), Investment Company Institute (ICI), and SIFMA, on behalf of the T+2 Industry Steering Committee, commended the change.
“A shorter settlement cycle will directly and tangibly reduce risks within U.S. capital markets, while better aligning our markets with those of other jurisdictions,” ICI President and CEO Paul Schott Stevens said.
Shortening the time it takes to settle trades from the current three-day cycle to T+2 will benefit investors and market participants, the SEC said. A shorter settlement timeframe will reduce credit, market and liquidity risks, promote financial stability, and align the United States with other T+2 settlement markets across the globe.
Given the lower levels of risk associated with a shorter settlement cycle, DTCC estimates the move will reduce the average daily capital requirements for clearing trades through DTCC’s National Securities Clearing Corporation (NSCC) by 25 percent, or $1.36 billion. A shorter settlement cycle will further enhance U.S. market structure, improving safety and efficiency for investors.
“We are pleased to see the SEC take important action to align the U.S. settlement cycle with other key markets around the globe,” Murray Pozmanter, head of clearing agency services and global operations and client services at DTCC, said. “We commend Acting Chairman Piwowar and Commissioner Stein for their dedication and leadership on this issue. 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.”
Kenneth Bentsen, Jr., SIFMA president and CEO, said the shift to T+2 will enhance the investor experience, reduce risk, and keep the U.S. competitive with global markets.
“The SEC’s action marks a critical milestone and the last major hurdle in the T+2 effort. Moving forward, robust planning and coordination among the industry and regulators will be essential to meet the T+2 target date of September 5, 2017,” Bentsen said.