SEC Enforces Rules to Mitigate Hazards in Clearance and Settlement, Ensuring Safety

Change of Rules by SEC

The Securities and Exchange Commission changed the rules today so that most broker-dealer transactions in securities will be settled one business day after the trade date (T+1) instead of two business days after the trade date (T+2). The final rule is meant to help investors and lower the credit, market, and liquidity risks that market participants face when they buy or sell securities.

Change of Rules by SEC

Gary Gensler, the head of the SEC, said, “I support this rulemaking because it will cut down on latency, lower risk, improve efficiency, and make the markets more liquid.” “Today’s adoption takes care of one of the four things the Commission should do to deal with the meme stock events of 2021, as suggested by the staff. When put together, these changes will make the way our markets work more reliable, timely, organized, and efficient.

The final rules will shorten the standard settlement cycle and improve the way institutional trades are handled. In particular, the final rules will say that a broker-dealer must either sign written agreements or set up, keep, and enforce written policies and procedures that are designed to make sure that allocations, confirmations, and affirmations are done as soon as technology allows and no later than the end of trade date.

The final rules also say that registered investment advisers must make and keep records of allocations, confirmations, and affirmations for certain securities transactions.

Also, the final rules add a new requirement for certain types of clearing agencies that offer central matching services to help with straight-through processing. The final rules will require central matching service providers to create, implement, maintain, and enforce new policies and procedures that are designed to make straight-through processing easier.

They will also have to send an annual report to the Commission that describes and quantifies the progress made on straight-through processing.

The adopting release is posted on and will be posted in the Federal Register. After being published in the Federal Register, the final rules will go into effect 60 days later. The last rules must be followed by May 28, 2024.

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