Shortening the Securities Transaction Settlement Cycle

Frequently Asked Questions Regarding the Transition to a T+1 Standard Settlement Cycle

The staff of the Divisions of Trading and Markets and of Investment Management have prepared the following responses to questions about the standard settlement cycle and investment adviser recordkeeping requirements. The staff may from time to time update this list to include additional questions and answers. The adopting release for Shortening the Securities Transaction Settlement Cycle is available at sec.gov/files/rules/final/2023/34-96930.pdf.

The below answers represent the views of the staff. They are not a rule, regulation, or statement of the Securities and Exchange Commission (“Commission”). The Commission has neither approved nor disapproved its content. These responses, like all staff guidance, have no legal force or effect: they do not alter or amend applicable law, and they create no new or additional obligations for any person.

For questions about the standard settlement cycle, please contact the Division of Trading and Markets at tradingandmarkets@sec.gov.  For questions about the investment adviser recordkeeping requirements, please contact the Division of Investment Management Chief Counsel’s Office at 202-551-6825 or IMOCC@sec.gov.

1. What is the compliance date for the amendments to 17 CFR 240.15c6-1 (“Rule 15c6-1”), which reduces the length of the standard settlement cycle from two business days after the trade date (“T+2”) to one business day after the trade date (“T+1”)?

   The compliance date is May 28, 2024. [1]

2. How can a market participant located outside the United States assess whether its securities transactions are subject to the requirements of Rule 15c6-1?

   Rule 15c6-1 applies to brokers and dealers required to register in the United States (“U.S. broker-dealers”) executing transactions in securities.[2] In 1995, the Commission issued a limited exemption for certain securities transactions for which the facilities for transfer or delivery of the securities exist primarily outside the United States.[3] More specifically, the exemption order provides an exemption from Rule 15c6-1 in the following circumstances:

   • For transactions in securities for which there is no transfer agent in the United States and which is not eligible for deposit at a registered clearing agency (together, “transfer or delivery facilities”);
   • For transactions in securities for which there are transfer or delivery facilities in the United States and outside the United States if annual trading in such securities in the United States constitutes less than 10% of the aggregate worldwide trading volume; and
   • For transactions in securities executed by a U.S. broker-dealer outside of the United States, the terms of which provide for delivery or payment outside of the United States.[4]

   The order further provides that an exemption from Rule 15c6-1 does not apply in the following circumstances:

   • Transactions intended to be executed by a U.S. broker-dealer on a registered securities exchange or through the facilities of a registered securities association subject to the rules of a national securities exchange or registered securities association and settled through the facilities of a registered clearing agency;[5] or
   • Transactions executed by a U.S. broker-dealer on a foreign exchange to satisfy its obligations to a U.S. customer.[6]
3. Are transactions that are exempt from the standard settlement cycle, such as those described in the Commission’s 1995 exemption order for foreign securities, also exempt from the requirements for same-day affirmation set forth in 17 CFR 240.15c6-2 (“Rule 15c6-2")?

   Yes. By its terms, paragraph (a) of Rule 15c6-2 states that the requirements apply to the allocation, confirmation, or affirmation process for a securities transaction that is subject to the requirements of Rule 15c6-1(a).[7] As such, the requirements of Rule 15c6-2 do not apply to securities transactions that are exempted from Rule 15c6-1. This includes, for example, the following: (i) certain types of securities listed in paragraph (a) of Rule 15c6-1, including exempted securities, government securities, municipal securities, commercial paper, bankers’ acceptances, and commercial bills;[8] (ii) the types of securities transactions described in paragraph (b) of Rule 15c6-1 including, for example, security-based swaps;[9] (iii) those securities transactions that meet the terms of the Commission’s 1995 exemption order for foreign securities;[10] and (iv) those securities transactions that meet the terms of the Commission’s 1995 exemption order for insurance products.[11]

4. Under what terms can the parties to a transaction “extend” settlement beyond the standard settlement cycle (i.e., beyond a T+1 standard settlement cycle, as of May 28, 2024)?

   The Commission did not modify the terms for extending settlement beyond the standard settlement cycle when it adopted the amendments to Rule 15c6-1 implementing a new T+1 standard.[12] Accordingly, the parties to a transaction may extend settlement for a given securities transaction by expressly agreeing at the time of the transaction to the terms of settlement pursuant to the requirements in paragraph (a) or (d) of Rule 15c6-1.[13] 

   For example, paragraph (a) provides that the parties to a transaction can extend settlement by expressly agreeing to do so at the time of the transaction.[14]  The Commission has previously stated that this so-called “override provision” in paragraph (a) is intended for use only in “unusual” or “limited” circumstances.[15]

5. If the parties to a trade have agreed to “extend” settlement for a given transaction pursuant to the requirements of Rule 15c6-1, do the requirements regarding same-day affirmation under Rule 15c6-2 still apply to the transaction?

   Yes. By its terms, paragraph (a) of Rule 15c6-2 states that the requirements apply to any broker or dealer engaged in the allocation, confirmation, or affirmation process for a securities transaction that is subject to the requirements of Rule 15c6-1(a).[16] Accordingly, any transaction subject to Rule 15c6-1(a) is also subject to the requirements of Rule 15c6-2. However, Rule 15c6-2 would not apply to securities transactions expressly excluded from the requirements of Rule 15c6-1(a), such as those types of securities expressly excluded in 15c6-1(a) itself,[17] or those types of transactions or securities described in paragraphs (b) or (c) of Rule 15c6-1.[18]

6. A recent publication by the Depository Trust & Clearing Corporation (DTCC) stated that, to maintain current levels of market efficiency, the securities industry should affirm 90% of transactions by the 9:00 PM ET cutoff that DTCC will use to process affirmations received.[19] Has a market participant satisfied the requirements of Rule 15c6-2 if the market participant achieves a same-day affirmation rate of 90% for its transactions?

   No. Rule 15c6-2 does not establish a “threshold” or “safe harbor” linked to the percentage of transactions that achieve same-day affirmation. Rather, the requirements in Rule 15c6-2 apply to each transaction for which a broker or dealer engages in the allocation, confirmation, and affirmation process. Specifically, Rule 15c6-2 states that any broker or dealer engaging in the allocation, confirmation, or affirmation process with another party or parties to achieve settlement of the transaction shall take the steps identified in either Rule 15c6-2(a)(1) or (2) to ensure completion of the allocation, confirmation, affirmation, or any combination thereof, for the transaction as soon as technologically practicable and no later than the end of the day on trade date in such form as necessary to achieve settlement of the transaction.[20]

7. Do a registered investment adviser’s obligations under the amendments to 17 CFR 275.204-2(a)(7)(iii) (the “recordkeeping requirements”) vary based on the source or form of the allocation, confirmation or affirmation, or on whether the allocation, confirmation or affirmation is sent or received by a particular deadline? 

   No.  An investment adviser registered or required to be registered under Section 203 of the Investment Advisers Act of 1940 must make and keep records of each confirmation they receive and of any allocation and each affirmation they send or receive for any transaction that is subject to the requirements of Rule 15c6-2(a) under the Securities Exchange Act of 1934, no matter the source or form of the allocation, confirmation or affirmation.  An adviser may receive allocations, confirmations or affirmations from a variety of sources, including executing brokers, custodians or prime brokers, and in a variety of forms, including e-mail, paper, or messaging through trading platforms.  Such an allocation, confirmation or affirmation in all cases is subject to the recordkeeping requirements. 

   In addition, the recordkeeping requirements apply without regard to when each confirmation is received or when any allocation and each affirmation is sent or received.  For example, if an adviser receives an affirmation on trade date or a copy of the affirmation on T+2 from their custodian who affirmed the trade, the adviser must retain them as records.  The affirmation, as with each affirmation and any allocation sent or received, must include a date and time stamp that indicates when it was sent or received.

The above questions and answers were published on March 27, 2024.