The Securities Industry and Financial Markets Association (SIFMA) announced last week its support of the U.S. Securities and Exchange Commissionʻs proposal to shorten the securities transaction settlement cycle.
The proposal would shorten the cycle from the current trade date plus two days (T+2) to trade date plus one day (T+1). In a letter to the SEC, SIFMA officials highlighted the benefits of the change, including overall risk reduction, capital optimization, and improvements in post-trade processing efficiency.
The proposal also reflects many of the recommendations SIFMA made in its report, called “Accelerating the U.S. Securities Settlement Cycle to T+1,” which it drafted with the Depository Trust and Clearing Corporation (DTCC), the Investment Company Institute (ICI), and Deloitte & Touche LLP in December 2021.
“As part of ongoing efforts to decrease risk in the system, SIFMA, ICI, and DTCC started discussions around accelerating the settlement cycle in 2020 and formally initiated the effort to accelerate the settlement cycle to T+1 in early 2021,” Kenneth Bentsen, Jr., SIFMA president and CEO, said. “We welcome the SEC’s leadership in supporting the acceleration of the settlement cycle to T+1 as this will provide regulatory certainty to market participants.”
SIFMA outlined several recommendations and comments in the SEC’s accelerated settlement proposal. SIFMA recommends that the compliance date be the first trading day after a three-day weekend involving a U.S. Federal Holiday. Assuming the final rule is published no later than two years before the transition date, SIFMA recommends a compliance date of Sept. 3, 2024. This will increase the likelihood of a smooth transition to T+1, SIFMA said.
Additionally, SIFMA said the industry is focused on T+1 settlement, not T+0 settlement. T+0 is complex and faces several challenges, and is not feasible for the entire industry at this time. T+0 is complex and would impact multiple products, markets, processes, and investors.
Further, SIFMA recommends that the SEC revise Rule 15c6-2 to provide greater flexibility to both broker-dealers and their customers with respect to the allocation, confirmation, and affirmation process. SIFMA does not support the SEC’s written agreement requirements as it would disproportionately impact broker-dealers.
In addition, SIFMA advocates that the SEC retain the exception in paragraph (c) of Rule 15c6-1 that gives firm commitment underwritings additional time to settle if unforeseen circumstances arise. Also, SIFMA requests an exemption from SEC Rule 15c6-1 for security-based swaps, which are generally bilateral and executory in nature.
Among other recommendations, SIFMA calls for the SEC to support the dematerialization of all physical securities in circulation and expedite the delivery of required documentation to better align with T+1 settlement. To the latter point, SIFMA believes e-Delivery should be the default mechanism for prospectus and confirmation delivery.