WASHINGTON – The Securities and Exchange Commission on Wednesday unanimously approved a rule change to shorten the standard settlement cycle for most broker-dealer securities transactions, including municipal bonds, to two instead of three business days after the trade date.
The adoption of the change to SEC Rule 15c6-1(a) followed its proposal by roughly six months. It will take effect on Sept. 5.
Muni market and other industry groups, as well as self-regulators such as the Municipal Securities Rulemaking Board, have already begun working the shift. The SEC approved MSRB rule changes to facilitate moving to T+2 in April of last year.
The shorter cycle is designed to reduce the risk that market changes could affect trade prices and to lessen potential liquidity pressures.
SEC acting chairman Michael Piwowar said at the SEC meeting on the rule change that "rarely is an issue as commonsensical or broadly supported as this one" and that, "It is finally time to say hasta la vista to the antiquated T+3 settlement cycle."
"Market participants' overall exposure to unsettled trades should decrease, as should any attendant credit, market, and liquidity risk," he said. "It will be incumbent on each broker-dealer, mutual fund, self-regulatory organization, trading venue, clearing agency, transfer agent and other affected market participants to do its respective part to ensure a collective readiness for a smooth transition to T+2."
SEC Commissioner Kara Stein said that, while the move to T+2 will be "an improvement," much "more can and should be done" in this digital age and time of improved technology.
The commissioners have asked the staff to explore moving to a T+1 cycle and other possible improvements to the settlement cycle, she said. The staff is to complete its study and provide recommendations within three years, she added.
