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Sept. 28 — Parties to a securities transaction would have less time to meet their obligations under a rule proposed Sept. 28 by a unanimous Securities and Exchange Commission (RIN:3235-AL86).
Trades would have to be settled within two days of the transaction—T+2—under the proposal. The trade settlement cycle is T+3.
The shorter time frame would lessen credit and market risk exposure that accompanies unsettled trades and reduce liquidity risk, Chairman Mary Jo White said. The three commissioners unanimously voted to propose it at an open meeting, in which they also adopted a rule regulating clearing agencies.
Shortening the cycle enjoys wide support from industry and other stakeholder groups.
“Shortening the settlement period to T+2 will help make our markets more efficient and reduce risk to the benefit of all investors,” Marty Burns, chief industry operations officer for the Investment Company Institute, said in a statement. “The SEC’s proposal sends a clear, important signal to industry stakeholders that regulators are committed partners in realizing this important change.”
Industry groups are trying to get the shorter cycle requirement, which applies to most asset classes, fully implemented by September 2017.
Some assets, like money market funds and options, already trade at T+1, and others, including government and municipal securities, are exempt from the proposal.
“Years from now, investors will be puzzled about how a T+3 settlement cycle existed for so long,” Commissioner Michael Piwowar said. “As such, this proposal is a no-brainer, a slam-dunk, a cakewalk—pick your favorite metaphor.”
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For the proposal, visit https://www.sec.gov/rules/proposed/2016/34-78962.pdf
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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