SEC Finalizes Rule on T+1 Settlement Cycle

In February, the Securities and Exchange Commission finalized its rule proposal shortening the settlement cycle of most securities transactions to within one business day of the trade date, what is referred to as “T+1.” The new rule prohibits broker-dealers from entering into a contract to purchase or sell a security requiring payment of funds and delivery of securities later than T+1, unless the parties expressly agree to a different settlement date at the time of the transaction. A Davis Polk client alert breaks down the changes as follows:

  • Default rule for most securities transactions is T+1
  • Firm commitment underwriting priced after 4:30 p.m. EST – settlement changed from T+4 to T+2
  • Override provision (as stated above), parties are permitted to agree to a later settlement date so long as that agreement is reached at the time of the transaction

In connection with the shortened settlement timeline, the final rule also adds procedural requirements on broker-dealers relating to allocations, confirmations, and affirmations, as well as record-keeping requirements for registered investment advisers. The T+1 transition and implementation deadline is currently set for May 28, 2024. The Commission is still examining the feasibility of a T+0 (settlement by end of trade-day) and is likely to reach out to market participants for further data.

Click here to read the Commission’s press release.
Click here to read a client alert from Davis Polk.