SEC proposes securities risk, clearance settlement revisions

The U.S. Securities and Exchange Commission (SEC) recently proposed rule changes as a means of reducing risks in the clearance and settlement of securities.

© Shutterstock

“These proposed amendments to the securities clearing and settling process, if adopted, could lower risk to the financial system and drive greater efficiencies in the markets,” SEC Chair Gary Gensler said. “First, these amendments would shorten the standard settlement cycle. As the old saying goes, time is money. Shortening the settlement cycle should reduce the amount of margin that counterparties would need to post with clearinghouses. Second, these changes would require affirmations, confirmations, and allocations to take place as soon as technologically practicable on trade date (“T+0”). Finally, the release would require clearing agencies that provide central matching services to have policies and procedures to facilitate straight-through processing — i.e., fully automated transactions processing.”

The revisions would focus on rules directed at broker-dealers and registered investment advisers to expedite the process of confirming and affirming trade information needed to prepare a transaction for settlement for completion by the end of the trade date.

Investment Company Institute (ICI) President and CEO Eric J. Pan said the SEC’s proposal recognizes moving to T+1 is the correct step for the nation’s financial system.

“Some of the proposed reporting requirements are different from the industry’s current requirements, and we’ll need to carefully assess how these differences could affect the move to T+1,” Pan noted. “Moving to T+1 will mitigate investors’ risk exposure during market volatility and make our financial system more resilient.”

The public comment period regarding the proposed revisions would remain open for 60 days following publication on the SEC’s website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.