(Article from Registered Funds Regulatory Update, April 2023)
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On February 15, 2023, the SEC adopted changes to Rule 15c6-1 under the Exchange Act in an effort to decrease risk, latency and inefficiency in the market. These changes were proposed following the highly turbulent market conditions of early 2021, which were largely driven by a social media-based trading frenzy. During this period of intense volatility, retail flows tied to the T+2 settlement cycle overwhelmed broker-dealers, leading to shut-offs in trading.
The adopted amendments to Rule 15c6-1 shorten the standard settlement cycle. Securities currently must settle within two business days after the trade date – the changes to Rule 15c6-1 will shorten the standard settlement cycle to one business day, while clarifying that parties can still opt out of T+1 settlement if both the buyer and the seller agree. Similarly, firm commitment offerings that price after 4:30 p.m. ET will now have a settlement cycle of two days instead of four days. These amendments are expected to increase the responsiveness and resilience for market participants generally. Furthermore, the adoption of new Rule 15c-2 requires broker-dealers to maintain robust recordkeeping practices and encourages the completion of allocations, confirmations, and affirmations by no later than the end of each trade date, with the aim of improving institutional trade processing.
In adopting Rule 15c6-2, the SEC seeks to incentivize the timely completion of institutional trades as soon as technologically feasible, and by end of the applicable trade date at the very latest. Furthermore, in connection with transaction processes that include allocations, confirmations, and affirmations, Rule 15c6-2 requires broker-dealers to (i) enter into written agreements that are in compliance with the market participant’s policies and procedures and clearly discuss potential issues regarding timing, or (ii) establish, maintain, and enforce robustly developed policies and procedures that address potential obstacles to same-day affirmation.
The historic market failures of early 2021 have also given rise to other SEC rule proposals regarding clearinghouse reform and decreasing payment for order flow, among others. The compliance date of the amended rule is
May 28, 2024.
Shortening the Securities Transaction Settlement Cycle, SEC Release Nos. 34-96930, IA-6239; File No. S7-05-22, available at: https://www.sec.gov/rules/final/2023/34-96930.pdf.