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Amendment to Securities Transaction Settlement Cycle - A Small Entity Compliance Guide

March 28, 2017

Amendment to Rule 15c6-1(a) under the Exchange Act[1]

On March 22, 2017, the Commission amended Rule 15c6-1(a) under the Securities Exchange Act of 1934 (“Exchange Act”) to shorten the standard settlement cycle for most broker-dealer transactions from three business days after the trade date (T+3) to two business days after the trade date (T+2). Specifically, paragraph (a) of Rule 15c6-1 under the Exchange Act, as amended, prohibits broker-dealers from effecting or entering into a contract for the purchase or sale of a security (other than certain securities subject to an exception) that provides for payment of funds and delivery of securities later than the second business day after the date of the contract, unless otherwise expressly agreed to by the parties at the time of the transaction.

Subject to the exceptions enumerated in the rule, the prohibition in paragraph (a) of Rule 15c6-1 applies to all securities. Rule 15c6-1(a) does not apply to a contract for an exempted security, government security, municipal security, commercial paper, bankers' acceptances, or commercial bills. The Commission did not amend the remaining paragraphs of the rule, which provide additional exceptions for: (i) transactions in limited partnership interests that are not listed on an exchange or for which quotations are not disseminated through an automated quotation system of a registered securities association; (ii) contracts for the purchase and sale of securities that the Commission may from time to time, taking into account then existing market practices, exempt by order; and (iii) contracts for the sale of cash securities that priced after 4:30 p.m. (Eastern Standard Time) that are sold by an issuer to an underwriter pursuant to a firm commitment offering registered under the Securities Act of 1933 or the sale to an initial purchaser by a broker-dealer participating in such offering.

Certain broker-dealers, including those that are small entities, may need to make changes to their business operations and incur certain costs to operate in a T+2 environment. For example, conversion to a T+2 standard settlement cycle may require broker-dealers, including those that are small entities, to make changes to their business practices, as well as to their computer systems, and/or to deploy new technology solutions. In addition, broker-dealers, including small entities, may need to test changes to systems, operations, policies, and procedures to operate in a T+2 environment. Broker-dealers, including small entities, that serve retail customers may also need to educate their customers regarding the shorter standard settlement cycle that the amendment to Rule 15c6-1(a) establishes.

Separately, shortening the standard settlement cycle could have an ancillary impact on how market participants, including those that are small entities, comply with existing regulatory obligations that are related to the settlement cycle. For example, the existing timeframe for effecting a close-out as required by Rule 204 of Regulation SHO for fail to deliver positions resulting from short sales will be reduced from T+4 to T+3 based on the existing definition of settlement date in Rule 204.[2] Similarly, with regard to fails to deliver resulting from long sales or sales from bona fide market making activity, the existing close-out requirement will be reduced from T+6 to T+5.

In addition, shortening the standard settlement cycle to T+2 effectively shortens the timeframe within which broker-dealers, including those that are small entities, must comply with the requirement under Exchange Act Rule 10b-10 to give or send a written confirmation at or before completion of the transaction.[3] The amendment to Rule 15c6-1(a) also will effectively reduce the number of days (from 13 business days to 12 business days) that broker-dealers, including those that are small entities, will have to obtain possession of customer securities before being required to close out a customer transaction under Exchange Act Rule 15c3-3(m).[4]

Compliance Date

The Commission established September 5, 2017 as the compliance date by which the transition to a T+2 standard settlement cycle should be implemented by industry participants. Accordingly, as of September 5, 2017, the standard settlement cycle for securities transactions covered by paragraph (a) of Rule 15c6-1 will be two business days following the date of the transaction, subject to the exceptions provided for in the rule. 

Other Resources

The adopting release for these amendments can be found on the Commission's website at https://www.sec.gov/rules/final/2017/34-80295.pdf.

Contacting the Commission

The Commission's Division of Trading and Markets is available to assist small entities with questions regarding these amendments. Questions may be directed to the Division of Trading and Markets by email at T2settlement@sec.gov or by telephone at (202) 551-5777.


[1] This guide was prepared by the staff of the U.S. Securities and Exchange Commission ("Commission") as a "small entity compliance guide" under Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, as amended. The guide summarizes and explains rules adopted by the Commission, but is not a substitute for any rule itself. Only the rule itself can provide complete and definitive information regarding its requirements.

[2] See 17 CFR 242.204(g)(1).

[3] See 17 CFR 240.10b-10.

[4] See 17 CFR 240.15c3-3(m).