Statement on Proposal to Shorten the Standard Settlement Cycle

Washington D.C.

Today’s proposal represents a relatively simple calculus: reducing the time it takes for securities transactions to settle, generally reduces risks - credit risks, market risks, liquidity risks, and importantly, potential systemic risk. That risk reduction, even when balanced against the costs to achieve it, should ultimately result in cost savings throughout the system as less margin is required by clearing agencies.[1] 

The settlement process, like equity markets more broadly, has changed considerably in the last couple of decades. In 1993, the Commission adopted a rule generally requiring settlement of trades to be accomplished in three days (down from the previous five-day process).[2] As advances in technology and increased automation continued, the Commission again took action in 2017, further shortening the settlement cycle from three days to two.[3] Two days remains the current standard settlement cycle for most equity securities transactions,[4] despite shorter settlement times in other markets such as options and government securities.[5]

In fact since 2017, there have been technological and operational improvements,[6] increases in the volume and size of securities transactions, and increased volatility that now warrant consideration of additional changes to modernize the clearance and settlement process. For example, volumes continue on the rise, with NSCC – the clearing agency for U.S. equity markets - reporting clearing an average of approximately $865 billion each day during the first quarter of 2017, which suggests an average net settlement obligation of approximately $ $25.95 billion each day.[7] By the first quarter of 2021, those amounts grew to an average of approximately $2.251 trillion,[8] suggesting an average net settlement obligation of approximately $45 billion each day.[9]

Increased episodes of extreme volatility also implicate the need to reassess the settlement cycle. For example, we saw extreme volatility in March of 2020 at the beginning of the pandemic,[10] and again in early 2021 with the so-called meme stock events.[11] Clearing agencies and settlement played a central role in those market events which highlighted the fact that a shorter settlement cycle could help mitigate credit, market and liquidity risks.[12]  

Today’s proposal seeks to shorten the standard settlement cycle from two days to one.[13] A shorter settlement timeframe reduces the volume and market value of unsettled trades. It could also result in significant long-term cost reductions from improvements in operational efficiencies. A shortened settlement should reduce clearing agency margin requirements,[14] allowing those funds to be used more effectively and productively. And importantly, reducing the settlement time also would give investors access to their securities and funds sooner. 

In that regard, the further path toward shortening the settlement cycle to same day settlement, as raised in the proposal, is an important goal and one that I believe is achievable. I look forward to receiving comment on the issues related to achieving same day settlement and the suggested methods for addressing them.

I appreciate the efforts and support of industry in assisting the Commission on this important issue. I know a lot of hard work, across a number of market participants, has gone into considering how to implement a T+1 settlement cycle, and I’m sure that work will continue to ensure a smooth transition if the proposal is adopted.

Finally, I especially want to thank the staff for their thoughtful work on this proposal. I look forward to reviewing comments on the proposal, including comments and data regarding further shortening the settlement cycle beyond T+1. I’m hopeful that as firms are assessing new technology investments, they will do so with a lens toward further risk reduction and efficiency improvements in the settlement processes. I’m pleased to support this proposal.


[1] See DTCC, Advancing Together: Leading the Industry to Accelerated Settlement (Feb. 2021) at 11;  (“Risk model simulations have shown that the Volatility component of NSCC’s margin could potentially be reduced by 41% by moving to T+1, assuming current processing and without any other changes in client behavior. Over the last year, the Volatility component has accounted for approximately 60% of NSCC’s total margin.”).

[2] See Securities Transactions Settlement, Exchange Act Release No. 33023 (Oct. 6, 1993), 58 FR 52891 (Oct. 13, 1993) (“T+3 Adopting Release”). 

[3] See Exchange Act Release No. 80295 (Mar. 22, 2017), 82 FR 15564 (Mar. 29, 2017) (“T+2 Adopting Release”).

[4] See 17 CFR 240.15c6-1.

[5] See e.g., TPMG Consultative Paper: White Paper on Clearing and Settlement in the Secondary Market for U.S. Treasury Securities (Jul. 2018):

[6] See e.g., Exchange Act Release No. 87022 (Sept. 19, 2019), 84 FR 50541 (Sept. 25, 2019) (order amending NSCC’s settlement guide to implement a new algorithm for night cycle transactions); Exchange Act Release No. 87756 (Dec. 16, 2019), 84 FR 70256 (Dec. 20, 2019) (order extending the implementation timeframe for the new algorithm for transactions processed in the night cycle); Exchange Act Release No. 87023 (Sept. 19, 2019), 84 FR 50532 (Sept. 25, 2019) (order amending the CNS Accounting Operation of NSCC’s Rules & Procedures with respect to receipt of securities from NSCC’s CNS System).

[7] See NSCC CPMI-IOSCO Quantitative Disclosure Results – Q1 2017 (Jun. 2017).

[8] See NSCC, Q1 2021 Fixed Income Clearing Corporation and NSCC Quantitative Disclosure for Central Counterparties, at 20 (Jun. 2021).

[9] See Shortening the Securities Transaction Settlement Cycle, Exchange Act Release No. 34-94196 (Feb. 9, 2022). 

[10] See Staff Report on Algorithmic Trading in U.S. Capital Markets (Aug. 5, 2020).

[11] See Staff Report on Equity and Options Market Structure Conditions in Early 2021 (Oct. 14, 2021).

[12] See Staff Report on Equity and Options Market Structure Conditions in Early 2021 (Oct. 14, 2021).

[13] See Shortening the Securities Transaction Settlement Cycle, Exchange Act Release No. 34-94196 (Feb. 9, 2022).  The release also proposes (i) to repeal the T+4 standard settlement cycle for firm commitment offerings priced after 4:30 p.m. and (ii) new requirements for the processing of institutional trades by broker-dealers, investment advisers, and certain clearing agencies.  The release also solicits comment on specific Commission rules and regulations, as well as comment on pathways to accelerating beyond a T+1 settlement.

[14] See e.g., DTCC, Advancing Together: Leading the Industry to Accelerated Settlement (Feb. 2021).

Last Reviewed or Updated: Feb. 9, 2022