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The Clock Is Running to Comply with Quicker Securities Settlement Rule

Two years after the stock-trade settlement process was tied to controversy in the meme stock market, the Securities and Exchange Commission has announced its new rules to shorten the standard settlement cycle. 

What’s changing: For most broker-dealer transactions, the rules reduce the settlement window from two business days after the trade date (T+2) to one (T+1). This and related changes the SEC announced will, in the words of SEC Chair Gary Gensler, “upgrade our market plumbing from bronze to copper.” 

While Gensler said the rules “address the meme stock events of 2021,” they are more widely designed to reduce the credit, market, liquidity, and counterparty risks in securities transactions for all involved. In a statement responding to the SEC’s announcement, the Securities Industry and Financial Markets Association (SIFMA) noted that the industry has been moving toward T+1 since 2020. 

Time crunch? The SEC’s settlement rules have been widely praised, but some think they might be coming a bit too quickly—including SIFMA, which said “we strongly disagree with the implementation date.” SEC Commissioner Mark T. Uyeda withheld support for implementation of the rules, saying “a smooth transition will take significant investment and system changes.” 

Uyeda said it would make sense for T+1 to take effect in September 2024, about the same time Canada will adopt the shorter settlement cycle. 

In an April 2022 comment letter to the SEC after the rules were proposed, RMA asked to delay implementation until the end of 2024. Without such a delay, RMA said, lenders might add restrictions or limits to their securities lending programs to avoid trade settlement fails—which would reduce liquidity and lead to further trade settlement failures.