TheCorporateCounsel.net

Last week, an industry working group of 800+ brokerage firms, custodians, and clearinghouses released this 43-page report to recommend a transition to a “T+1” settlement cycle for market transactions. The Securities Industry & Financial Markets Association, working with the Investment Company Institute, The Depository Trusty & Clearing Corporation and Deloitte, led the working group.

Although the SEC’s Investor Advisory Committee had recommended a one business day settlement cycle way back in 2015, when the SEC adopted 2017 rules on the topic, it just moved incrementally from a T+3 requirement to T+2. But earlier this year, investors, SEC Chair Gary Gensler and DTCC blamed slow settlement times as one factor in the meme stock frenzy. The push for a shorter cycle now seems to be gaining more momentum. Here are a few of the new report’s recommendations and conclusions:

Corporate Actions:

• Coordinate with regulators and exchanges to align the ex-date with the record date for regular-way corporate actions

• Adopt SWIFT messaging, or other automated means, across the corporate actions lifecycle to increase efficient communication by industry participants related to corporate action events

• Industry to evaluate whether the cover/protect period should be eliminated

Equity & Debt Offerings

• Retain the exception in Rule 15c6-1(c) but shorten the applicable period to T+2

• Retain the exception in Rule 15c6-1(d) to allow debt and other offerings to have the ability to opt for extended settlement

Regulatory Impacts

• Continue to engage the regulatory community to ensure that rules and regulations that identify regular way settlement as greater than T+1 be changed, including the SEC’s capstone rule 15c6-1(a) of the Securities Exchange Act of 1934 and the associated rules derived from it, to create regulator certainty for market participants

Same-Day Settlement

• As the industry analyzed the migration to T+1 settlement, the IWG also considered the impacts and benefits of moving to T+0 settlement. The ISC and IWG concluded, by consensus, that T+0 is not achievable in the short term given the current state of the settlement ecosystem.

I blogged back in May that if T+1 is adopted, it would have the most impact on broker-dealer obligations. Particularly in debt transactions, issuers sometimes prefer longer settlement periods so that interest doesn’t start accruing. These recommendations suggest that the exception for extended settlement would continue to exist. The report walks through detailed considerations for how a shorter settlement cycle could affect equity and debt offerings, beginning on page 31.

– Liz Dunshee