The Securities and Exchange Commission, responding to the meme stock fad of 2021, approved a proposal to cut the standard settlement cycle for most broker-dealer securities transactions to one ꦕb♔usiness day after the trade (T+1) from two (T+2). The change takes effect on May 28 of next year. 

Gensler Says Change Aims to Boost Efficiency

“It will reduce latency, lower risk, and promote efficiency as well as greater liquidity in the markets,” said SEC Chair 澳洲幸运5官方开奖结果体彩网:Gary Gensler. “Today’s adoption addresses one of the four areas the staff recommended the Commission address in response to the meme stock events of 2021. Taken together, these amendments will make our market plumbing more resilient, timely, orderly, and efficient."

A T+1 settlement cycle, the norm in the 1920s, is also used by the U.S. Treasury market and was adopted by India in January.

Benefits Come With Risks

The changes are expected to reduce the credit, market, and liquidity risks faced by market participants and U.S. investors. It will also reduce the number of unsettled tr༺ades.

The move isn't risk-free. It could mean 𝔉that investors have less time to correct errors or freeze from being moved in the case of potential fraud, according to Commissioner , who voted against the measure. It passed 3-2.

A Change to Institutional Trades

Still, the rules will improve the processing of institutional trades. Broker-dealers will be required to either enter into𒅌 written agreements or establish, maintain, and enforce written policies and procedures designed to ensure allocations, confirmations, and affirmations are comple𒈔ted as soon as technology permits and by the end of the trade date. 

The rules also require registered investment advisers to keep records of allocations, confirmations, and affirmations. There will also be a requirement for clearing agencies that provide matching services to facilitate 澳洲幸运5官方开奖结果体彩网:straight-through processing.

The Bottom Line

In March 2020, following the outbreak of COVID-19, and in January 2021, following the heightened interest in meme stocks, market volatility highlighted potential vulnerabilities in the U.S. securities market that can be mitigated by shortening the standard settlement cycle and improving institutional trade processing. According to Gensler, shortening the standard settlement cycle even further may also help.