Final Rule (314 pages)
Gary Gensler Tweet on it: twitter.com/GaryGensler/status/1625884241656414209
We simply adopted guidelines & rule amendments to shorten the usual settlement cycle for many securities transactions. Taken collectively, these amendments will make our market plumbing extra resilient, well timed, orderly, and environment friendly.
Halving these settlement cycles will cut back the quantity of margin that counterparties want to put with the clearinghouse. This lowers threat within the system and frees up liquidity elsewhere out there.
First, the amendments will shorten the usual settlement cycle by half, from two enterprise days (“T+2”) to 1 enterprise day (“T+1”). The amendments additionally will halve the settlement cycle for trades referring to preliminary public choices, from T+4 to T+2. As they are saying, time is cash. Halving these settlement cycles will cut back the quantity of margin that counterparties want to put with the clearinghouse. This lowers threat within the system and frees up liquidity elsewhere out there.
Now, that’s to not say this transformation can be new; the truth is, this transformation merely brings us again to the T+1 settlement cycle our markets used up till the Nineteen Twenties. It additionally aligns with the T+1 cycle used within the $24 trillion Treasury market.
Second, the amendments will decrease the danger of the clearing course of related to allocation, affirmation, and affirmation. Beneath the adoption, brokers can be required to finish same-day allocation, affirmation, and allocation as quickly as technologically sensible and no later than the tip of the commerce date. This can enhance resiliency and effectivity in our plumbing. The adoption will enable brokers to realize these enhancements both by written agreements or by insurance policies and procedures.
Third, the proposal would require clearinghouses to facilitate the straight-through processing of securities transactions. Straight-through processing refers back to the course of for automating the whole commerce course of, from execution to clearing and settling. Such automation, benefitting from technological developments, will make our market plumbing extra environment friendly.
The Securities and Trade Fee in the present day adopted rule adjustments to shorten the usual settlement cycle for many broker-dealer transactions in securities from two enterprise days after the commerce date (T+2) to 1 (T+1). The ultimate rule is designed to profit traders and cut back the credit score, market, and liquidity dangers in securities transactions confronted by market contributors.
“I assist this rulemaking as a result of it’s going to cut back latency, decrease threat, and promote effectivity in addition to larger liquidity within the markets,” mentioned SEC Chair Gary Gensler. “At this time’s adoption addresses one of many 4 areas the employees advisable the Fee tackle in response to the meme inventory occasions of 2021. Taken collectively, these amendments will make our market plumbing extra resilient, well timed, orderly, and environment friendly.”
Along with shortening the usual settlement cycle, the ultimate guidelines will enhance the processing of institutional trades. Particularly, the ultimate guidelines would require a broker-dealer to both enter into written agreements or set up, keep, and implement written insurance policies and procedures moderately designed to make sure the completion of allocations, confirmations, and affirmations as quickly as technologically practicable and no later than the tip of commerce date. The ultimate guidelines additionally require registered funding advisers to make and preserve data of the allocations, confirmations, and affirmations for sure securities transactions.
Additional, the ultimate guidelines add a brand new requirement to facilitate straight-through processing, which applies to sure sorts of clearing companies that present central matching providers. The ultimate guidelines would require central matching service suppliers to ascertain, implement, keep, and implement new insurance policies and procedures moderately designed to facilitate straight-through processing and require them to submit an annual report back to the Fee that describes and quantifies progress with respect to straight-through processing.