On February 9, 2022, the Securities and Exchange Commission (SEC or Commission) voted to propose rule changes (the Proposal) that, among other things, would shorten the standard settlement cycle for most broker-dealer securities transactions from two business days after the trade date (T+2) to one business day after the trade date (T+1). The decreased settlement cycle is intended to protect U.S. investors and other market participants by decreasing credit, market, and liquidity risks.

The SEC has sought to address the standard settlement cycle time since the late 1980s, with reductions occurring in 1993 (from T+5 to T+3) and in 2017 (from T+3 to T+2). More recent events have motivated the Commission to further reduce market risks and enhance efficiencies. These events include two episodes of market volatility – in March 2020 due to the Covid-19 pandemic outbreak, and the sudden rise in retail investor interest in “meme stocks” in January 2021. Both instances highlighted potential vulnerabilities in the U.S. stock market. The Commission has also considered a report issued in December 2021 by the Depository Trust and Clearing Corporation, the Investment Company Institute, the Securities Industry and Financial Markets Association, and Deloitte & Touche LLP, which presented industry recommendations to implement a T+1 standard settlement cycle in the United States.

The Proposal would amend Rule 15c6-1(a) under the Securities and Exchange Act of 1934, and the SEC is accepting public comments on the Proposal until April 11, 2022. If enacted, the rule changes would be implemented by March 31, 2024. It is also possible, based on comments received in response to the Proposal, that the SEC could seek to further reduce the settlement time to T+0 (same-day settlement) at some point in the future.

The attorneys at Giarrusso Law Group LLC have considerable experience with issues unique to the financial services industry, including federal and state legislative and regulatory developments affecting both investors and financial advisors. If you have a question regarding this recent announcement or any other industry matter, you can contact us at (201) 771-1115 or info@gialawgroup.com for a free and confidential consultation.