Conformed to Federal Register version

Agency decision

Ask Donna

What actually matters in this document.

Text

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 232, 240, and 275

[Release Nos. 34-96930, IA-6239; File No. S7-05-22]

RIN 3235-AN02

Shortening the Securities Transaction Settlement Cycle

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

SUMMARY: The Securities and Exchange Commission (“Commission”) is adopting rule

amendments to shorten the standard settlement cycle for most broker-dealer transactions from two

business days after the trade date (“T+2”) to one business day after the trade date (“T+1”). In

addition, the Commission is adopting new rules related to the processing of institutional trades by

broker-dealers and certain clearing agencies. The Commission is also amending certain

recordkeeping requirements applicable to registered investment advisers.

DATES: Effective date: May 5, 2023.

Compliance date: The applicable compliance dates are discussed in Part VII of this release.

FOR FURTHER INFORMATION CONTACT: Matthew Lee, Assistant Director, Susan

Petersen, Special Counsel, Andrew Shanbrom, Special Counsel, Jesse Capelle, Special Counsel,

and Mary Ann Callahan, Senior Policy Advisor, at (202) 551-5710, Office of Clearance and

Settlement, Division of Trading and Markets; Jennifer Porter, Senior Special Counsel, Amy Miller,

Senior Counsel, and Holly H. Miller, Senior Financial Analyst, at (202) 551-6787, Division of

Investment Management; U.S. Securities and Exchange Commission, 100 F Street NE,

Washington, DC 20549-7010.

Conformed to Federal Register version

SUPPLEMENTARY INFORMATION: First, the Commission is amending paragraph (a) of 17

CFR 240.15c6-1 (“Rule 15c6-1”) under the Securities Exchange Act of 1934 (“Exchange Act”) to

shorten the standard settlement cycle for most broker-dealer transactions from T+2 to T+1, as

discussed in Part II.C.1.1 The Commission is also amending paragraph (b) of Rule 15c6-1 to

exclude security-based swaps from the requirements under paragraph (a) of the rule, and amending

paragraph (c) of Rule 15c6-1 to shorten the standard settlement cycle for firm commitment

offerings priced after 4:30 p.m. Eastern Time (“ET”) from four business days after the trade date

(“T+4”) to T+2, as discussed in Parts II.C.3 and II.C.4 respectively.

Second, to promote the completion of allocations, confirmations, and affirmations by the

end of trade date for transactions between broker-dealers and their institutional customers, the

Commission is adopting a new rule under the Exchange Act at 17 CFR 240.15c6-2 (“Rule 15c62”). Rule 15c6-2 requires a broker-dealer to either enter into written agreements as specified in the

rule or establish, maintain, and enforce written policies and procedures reasonably designed to

address certain objectives related to completing allocations, confirmations, and affirmations as

soon as technologically practicable and no later than the end of trade date. The specific

requirements of the rule are discussed in Part III.C.

Third, the Commission is amending 17 CFR 275.204-2 (“Rule 204-2”) under the

Investment Advisers Act of 1940 (“Advisers Act”) to require registered investment advisers to

make and keep records of the allocations, confirmations, and affirmations for securities

transactions subject to the requirements of Rule 15c6-2(a), as discussed in Part IV.C.

See Part II.A (discussing the types of securities transactions that are currently covered by

Rule 15c6-1(a)) and Part II.C.1 (discussing the types of securities transactions that will be covered

by the rule following the rule changes being adopted in this release).

Conformed to Federal Register version

Fourth, the Commission is adopting a new rule under the Exchange Act at 17 CFR

240.17Ad-27 (“Rule 17Ad-27”) to require clearing agencies that provide a central matching

service (“CMSPs”) to establish, implement, maintain, and enforce policies and procedures

reasonably designed to facilitate straight-through processing (“STP”) and to file an annual report

regarding progress with respect to STP. The specific requirements of the rule are discussed in Part

V.C.

Fifth, the Commission is amending 17 CFR part 232 (“Regulation S-T”) to require that a

CMSP submit the annual report required by Rule 17Ad-27 using the Commission’s Electronic

Data Gathering, Analysis, and Retrieval system (“EDGAR”) and tag the information in the report

using the structured (i.e., machine-readable) Inline eXtensible Business Reporting Language

(“XBRL”). The Commission discusses this requirement in Part V.C.4.

Finally, the Commission solicited and received comments regarding the effect of

shortening the settlement cycle on other Commission requirements, including 17 CFR 242.200

(“Regulation SHO”), 17 CFR 240.10b-10 (“Rule 10b-10”), the financial responsibility rules

applicable to broker-dealers, requirements related to prospectus delivery and “access versus

delivery,” and the impact on self-regulatory organization (“SRO”) rules and operations. These

comments are discussed in Part VI.

TABLE OF CONTENTS:

Introduction ........................................................................................................................... 7

II. Exchange Act Rule 15c6-1 – Standard Settlement Cycle ................................................ 10

Proposed Amendments to Rule 15c6-1............................................................................. 10

Comments ......................................................................................................................... 11

Length of Standard Settlement Cycle and Exchange Act Rule 15c6-1(a) ....................... 11

Securities Excluded from Requirements under Exchange Act Rule 15c6-1 ................... 26

Conformed to Federal Register version

Proposed Deletion of Rule 15c6-1(c) .............................................................................. 28

Retention of Exchange Act Rule 15c6-1(d) ..................................................................... 30

Exemptive Orders under Exchange Act Rule 15c6-1(b) ................................................. 31

Final Rule and Discussion ................................................................................................ 36

Amendment to Exchange Act Rule 15c6-1(a) ................................................................. 36

Response to Comments Relating to T+0 Settlement ....................................................... 45

Amendments to Exchange Act Rule 15c6-1(b) ............................................................... 47

Amendment to Exchange Act Rule 15c6-1(c) ................................................................. 50

Retention of Existing Exchange Act Rule 15c6-1(d) Unchanged ................................... 54

Exemptive Orders under Exchange Act Rule 15c6-1(b) ................................................. 55

III. Exchange Act Rule 15c6-2 – Same-Day Affirmation ....................................................... 60

Proposed Rule 15c6-2 ....................................................................................................... 60

Comments ......................................................................................................................... 62

1. Existing Commercial Incentives for Timely Trade Allocations, Confirmations, and

Affirmations ............................................................................................................................. 62

Linking Settlement Instructions to Affirmation ............................................................... 63

Definitions of Certain Terms ........................................................................................... 64

Use of Third Parties to Achieve Same-Day Affirmation ................................................. 65

5. Challenges Associated with Requiring Written Agreements in Support of Increasing

Same-Day Affirmations ........................................................................................................... 66

6. End-of-Day Trading, Transactions Across Multiple Time Zones, and Variations in Local

Holidays as Obstacles to Same-Day Affirmation .................................................................... 70

Alternative Rule Recommended in SIFMA August Letter.............................................. 71

Final Rule and Discussion ................................................................................................ 75

Modifications to Requirement for Written Agreements .................................................. 82

New Policies and Procedures Alternative to Written Agreements Requirement ............ 88

Elements of Reasonably Designed Policies and Procedures ........................................... 94

Use of Defined Terms Other than “Customer” ................................................................ 99

No Requirement to Link Settlement Instructions to Affirmations................................. 100

IV. Advisers Act Rule 204-2 – Investment Adviser Recordkeeping ................................... 102

Proposed Amendments to Rule 204-2 ............................................................................ 102

Comments ....................................................................................................................... 103

Conformed to Federal Register version

Final Rule and Discussion .............................................................................................. 104

Exchange Act Rule 17Ad-27 - Requirement for CMSPs to Facilitate Straight-Through

Processing .................................................................................................................................. 109

Proposed Rule 17Ad-27 .................................................................................................. 110

Comment Letters from DTCC ITP ................................................................................. 112

1. Amend Policies and Procedures Requirement to Add “Reasonably Designed” To the

Current Text ........................................................................................................................... 115

Use of ETCs and Manual Processes .............................................................................. 118

Amend the Annual Reporting Requirement to Better Achieve Transparency .............. 121

Support Further Standardization of Industry Protocols and Reference Data ................. 124

Final Rule and Discussion .............................................................................................. 125

New Rule 17Ad-27(a) – Requirement for Policies and Procedures .............................. 127

New Rule 17Ad-27(b) - Annual Report......................................................................... 136

New Rule 17Ad-27(c) – Timing of Filing Annual Report ............................................ 151

New Rule 17Ad-27(d) - Filing Annual Report in EDGAR and Confidentiality Issues 152

VI. Impact on Certain Commission Rules, Guidance, and SRO Rules .............................. 155

Regulation SHO .............................................................................................................. 156

Delivery of Rule 10b-10 Confirmations and Prospectuses ............................................. 160

Other Prospectus Delivery Matters ................................................................................. 164

Financial Responsibility Rules for Broker-Dealers ........................................................ 166

Changes to SRO Rules and Operations .......................................................................... 169

VII. Compliance Dates.............................................................................................................. 173

Exchange Act Rule 15c6-1 ............................................................................................. 173

Exchange Act Rule 15c6-1(b): Exclusion for Security-Based Swaps ............................ 181

Exchange Act Rule 15c6-2 and Advisers Act Rule 204-2 .............................................. 181

Exchange Act Rule 17Ad-27 .......................................................................................... 182

VIII.

Economic Analysis .................................................................................................... 183

Background ..................................................................................................................... 184

Baseline ........................................................................................................................... 192

Central Counterparties ................................................................................................... 192

Market Participants – Investors, Broker-Dealers, and Custodians ................................ 195

Conformed to Federal Register version

Investment Companies and Investment Advisers .......................................................... 201

Current Market for Clearance and Settlement Services ................................................. 203

Analysis of Benefits, Costs, and Impact on Efficiency, Competition, and Capital Formation

209

Benefits .......................................................................................................................... 209

Costs............................................................................................................................... 223

Economic Implications through Other Commission Rules ........................................... 232

Effect on Efficiency, Competition, and Capital Formation ........................................... 236

Quantification of Direct and Indirect Effects of a T+1 Settlement Cycle ..................... 243

Consideration of Reasonable Alternatives ...................................................................... 264

Delete 15c6-1(c) to T+2 ................................................................................................. 264

Adopt 17Ad-27 to Require Certain Outcomes............................................................... 265

3. Adopt Rule Changes to Rule 15c6-2 as recommended by SIFMA’s August Comment

Letter ...................................................................................................................................... 266

4. Replace the Written Agreement Requirement in Proposed Rule 15c6-2 with a PrinciplesBased Approach ..................................................................................................................... 268

Select a Later Implementation Date for Adoption of the Rule ...................................... 269

IX. Paperwork Reduction Act ................................................................................................ 270

Advisers Act Rule 204-2 ................................................................................................. 271

Exchange Act Rule 17Ad-27 .......................................................................................... 277

Exchange Act Rule 15c6-2 ............................................................................................. 280

Summary and Proposed Use of Information .................................................................. 280

Respondents ................................................................................................................... 283

Total Initial and Annual Reporting Burdens .................................................................. 284

Collection of Information is Mandatory ........................................................................ 286

Confidentiality ............................................................................................................... 286

Retention Period............................................................................................................. 287

Regulatory Flexibility Act ................................................................................................ 288

Exchange Act Rules 15c6-1 and 15c6-2 ......................................................................... 288

Need for the Rules ......................................................................................................... 288

Summary of Significant Issues Raised by Public Comment ......................................... 289

Description and Estimate of Small Entities ................................................................... 289

Conformed to Federal Register version

Projected Reporting, Recordkeeping, and Other Compliance Requirements ................ 290

Description of Commission Actions to Minimize Effect on Small Entities .................. 292

Amendment to Advisers Act Rule 204-2 ........................................................................ 293

Need for the Rule Amendment ...................................................................................... 293

Summary of Significant Issues Raised by Public Comment ......................................... 294

Description and Estimate of Small Entities ................................................................... 295

Projected Reporting, Recordkeeping, and Other Compliance Requirements ................ 296

Description of Commission Actions to Minimize Effect on Small Entities .................. 297

Exchange Act Rule 17Ad-27 .......................................................................................... 300

XI. Other Matters .................................................................................................................... 301

Statutory Authority .................................................................................................................. 301

Introduction

Promoting the timely, orderly, and efficient settlement of securities transactions has been a

longstanding Commission objective.2 To advance this objective, the Commission first took steps

in 1993 to establish a standard requiring the settlement of most securities transactions within three

business days of trade date (“T+3”), shortening the prevailing practice at the time of settling

securities transactions within five business days of trade date (“T+5”).3 The Commission has on

multiple occasions discussed how shortening the settlement cycle can protect investors, reduce risk

in the financial system, and increase operational efficiency in the securities market.4 In 2017, the

See Exchange Act Release No. 94196, Investment Advisers Act Release No. 5957 (Feb. 9,

2022), 87 FR 10436 (Feb. 24, 2022) (“T+1 Proposing Release”).

See Exchange Act Release No. 33023 (Oct. 6, 1993), 58 FR 52891 (Oct. 13, 1993) (“T+3

Adopting Release”).

See, e.g., Exchange Act Release No. 31904 (Feb. 23, 1993) 58 FR 11806 (Mar. 1, 1993)

(“T+3 Proposing Release”); T+3 Adopting Release, supra note 3; Exchange Act Release No.

78962 (Sept. 28, 2016), 81 FR 69240 (Oct. 5, 2016) (“T+2 Proposing Release”); Exchange Act

Conformed to Federal Register version

Commission shortened the standard settlement cycle from T+3 to T+2.5 Now, in part informed by

episodes in 2020 and 2021 of increased market volatility that highlighted potential vulnerabilities

in the U.S. securities market,6 the Commission believes that shortening the settlement cycle from

T+2 to T+1 can promote investor protection, reduce risk, and increase operational and capital

efficiency.7

As discussed in the T+1 Proposing Release,8 the Commission believes that substantial

progress has been made toward identifying the technological and operational changes that are

necessary to establish a T+1 settlement cycle, including the industry-level changes that would be

necessary to transition from a T+2 standard to a T+1 standard settlement cycle. The Commission

also discussed how additional regulatory steps were necessary to improve the processing of

institutional transactions, advancing two other longstanding objectives shared by the Commission

and the securities industry: the completion of trade allocations, confirmations, and affirmations on

trade date (an objective often referred to as “same-day affirmation”) and the straight-through

processing of securities transactions.9 Accordingly, the Commission proposed a combination of

Release No. 80295 (Mar. 22, 2017), 82 FR 15564, 15601 (Mar. 29, 2017) (“T+2 Adopting

Release”); T+1 Proposing Release, supra note 2.

See T+2 Adopting Release, supra note 4.

See T+1 Proposing Release, supra note 2, at 10444 n.61.

As stated in the T+1 Proposing Release, the Investor Advisory Committee recommended in

2015 that the Commission pursue T+1 (rather than T+2), noting that retail investors would

significantly benefit from a T+1 standard settlement cycle. See id. at 10439 & nn.28–29.

See id. at 10447.

As discussed in the T+1 Proposing Release, the Commission uses “straight-through

processing,” or “STP,” to refer generally to processes that allow for the automation of the entire

Conformed to Federal Register version

rule amendments and new rules to shorten the standard settlement cycle to T+1, establish new

requirements for broker-dealers and investment advisers designed to advance the same-day

affirmation objective, and to establish requirements for CMSPs to promote straight-through

processing.10

The Commission received many comments in response to the T+1 Proposing Release.11

Having considered the comments received, the Commission is adopting the proposed new rules

and rule amendments with modifications, as discussed further below. Specifically, in Part II, the

Commission discusses the comments received regarding the proposed amendments to Rule 15c6-1

under the Exchange Act, and modifications made in response to the comments. In Part III, the

Commission discusses the comments received regarding proposed Rule 15c6-2 under the

Exchange Act, and modifications made in response to the comments. In Part IV, the Commission

discusses the comments received regarding the proposed amendment to Rule 204-2 under the

Advisers Act, and modifications made in response to the comments. In Part V, the Commission

discusses the comments received regarding proposed Rule 17Ad-27 under the Exchange Act, and

modifications made in response to the comments. In Part VI, the Commission discusses the

comments received regarding the effect of shortening the settlement cycle on other Commission

requirements, including Regulation SHO, Rule 10b-10 under the Exchange Act, the financial

responsibility rules applicable to broker-dealers, requirements related to prospectus delivery and

“access versus delivery,” and the impact on SRO rules and operations.

trade process from trade execution through settlement without manual intervention. See id. at

10458; see also infra note 323 and accompanying text.

See T+1 Proposing Release, supra note 2, at 10436.

Copies of all comment letters received by the Commission are available at

https://www.sec.gov/comments/s7-05-22/s70522.htm.

Conformed to Federal Register version

II.

Exchange Act Rule 15c6-1 – Standard Settlement Cycle

Proposed Amendments to Rule 15c6-1

In the T+1 Proposing Release, the Commission proposed to amend Rule 15c6-1(a) to

prohibit broker-dealers from effecting or entering into a contract for the purchase or sale of a

security (other than an exempted security, a government security, a municipal security, commercial

paper, bankers’ acceptances, or commercial bills) that provides for payment of funds and delivery

of securities later than the first business day after the date of the contract unless otherwise

expressly agreed to by the parties at the time of the transaction.12 The proposed amendment to

Rule 15c6-1(a) would shorten the length of the standard settlement cycle for securities transactions

covered by the existing rule from T+2 to T+1.13

In addition to the proposed amendment to paragraph (a) of Rule 15c6-1, the Commission

proposed to delete paragraph (c) of the rule,14 which would, in conjunction with the proposed

amendment to paragraph (a), establish a T+1 standard settlement cycle for firm commitment

offerings priced after 4:30 p.m. ET. However, the so-called “override” provisions in paragraphs

(a) and (d) of Rule 15c6-1 would continue to allow contracts currently covered by paragraph (c) to

See T+1 Proposing Release, supra note 2, at 10447.

As explained in the T+1 Proposing Release, existing Rule 15c6-1(a) covers contracts for

the purchase or sale of all types of securities except for the excluded securities enumerated in

paragraph (a)(1) of the rule. See id. at 10446. The definition of the term “security” in section

3(a)(10) of the Exchange Act covers, among others, equities, corporate bonds, unit investment

trusts (“UITs”), mutual funds, exchange-traded funds (“ETFs”), American depository receipts

(“ADRs”), security-based swaps, and options. See id. at 10446 n.83. Application of Rule 15c61(a) extends to the purchase and sale of securities issued by investment companies (including

mutual funds), private-label mortgage-backed securities, and limited partnership interests that are

listed on an exchange. See id. at 10446 nn.84–85.

See id. at 10448–49.

Conformed to Federal Register version

provide for settlement on a timeframe other than T+1 if the parties expressly agree to a different

settlement timeframe at the time of the transaction.

In addition to proposing to delete paragraph (c) of Rule 15c6-1, the Commission proposed

conforming technical amendments to paragraphs (a), (b), and (d) of the rule. Specifically, the

Commission proposed to delete all references to paragraph (c) of Rule 15c6-1 that currently appear

in paragraphs (a), (b), and (d) of the rule.15

Comments

Length of Standard Settlement Cycle and Exchange Act Rule 15c6-1(a)

In response to the T+1 Proposing Release, the Commission received numerous comment

letters supporting a shorter settlement cycle for securities transactions.16 Many of these comment

See id. at 10449.

See, e.g., letters from Jaime N. Calaf (Feb. 9, 2022) (“Calaf Letter”); James Kelley (Feb. 9,

2022) (“Kelley Letter”); Kyle (Feb. 9, 2022) (“Kyle 1 Letter”); Curtis Robinson (Feb. 9, 2022)

(“Robinson 1 Letter”); Ryan, Business Owner (Feb. 9, 2022) (“Ryan 1 Letter”); L. Martin Stewart

(Feb. 9, 2022) (“Stewart Letter”); Anthony LaBree (Feb. 10, 2022) (“LaBree Letter”); Nicolas

Zach (Feb. 13, 2022) (“Zach Letter”); Richard Stauts (Feb. 14, 2022) (“Stauts Letter”); PressPage

Entertainment Inc. (Feb. 15, 2022) (“PressPage Letter”); Peter Duggan, President, Securities

Transfer Association (Apr. 1, 2022), at 2 (“STA Letter”); Kirsten Wegner, Chief Executive

Officer, Modern Markets Initiative (Apr. 4, 2022), at 1 (“MMI Letter”); Hope Jarkowski, General

Counsel, NYSE Group, Inc. (Apr. 6, 2022), at 1 (“NYSE Letter”); Keith Evans, Executive

Director, Canadian Capital Markets Association (Apr. 9, 2022), at 1 (“CCMA April Letter”);

Steven Wager, Chair, Americas Focus Committee, Association of Global Custodians (Apr. 11,

2022), at 3 (“AGC April Letter”); Stephen Hall, Legal Director and Securities Specialist, and Jason

Grimes, Senior Counsel, Better Markets, Inc. (Apr. 11, 2022), at 1 (“Better Markets Letter”); Paul

Conn, President, Global Capital Markets, and Claire Corney, Senior Managing Director,

Regulatory & Market Initiatives, Global Capital Markets, Computershare Limited (Apr. 11, 2022),

at 1 (“Computershare Letter”); Birgitta Siegel, Esq., Adjunct Professor of Law, Cornell Law

School Securities Law Clinic (Apr. 11, 2022), at 1 (“Cornell Law Letter”); Murray Pozmanter,

Managing Director, Head of Clearing Agency Services & Global Business Operations, The

Depository Trust and Clearing Corporation (Apr. 11, 2022), at 2 (“DTCC Letter”); Joanna Mallers,

Secretary, FIA Principal Traders Group (Apr. 11, 2022), at 1 (“FIA PTG Letter”); Robert Adams,

Chief Operations Officer, National Financial Services LLC (Apr. 11, 2022), at 1 (“Fidelity

Letter”); Gail C. Bernstein, General Counsel, Investment Adviser Association (Apr. 11, 2022), at 1

Conformed to Federal Register version

letters supported shortening the standard settlement cycle to T+1.17 Several comment letters that

supported the Commission’s proposal to shorten the settlement cycle to T+1 also supported

shortening the settlement cycle to “T+0” or instantaneous settlement.18 Other comment letters

(“IAA April Letter”); Susan Olson, General Counsel, and Joanne Kane, Chief Industry Operations

Officer, Investment Company Institute (Apr. 11, 2022), at 1 (“ICI Letter”); Jack Rando, Managing

Director, The Investment Industry Association of Canada (Apr. 11, 2022), at 1 (“IIAC Letter”);

Jennifer Han, Executive Vice President, Chief Counsel & Head of Regulatory Affairs, Managed

Funds Association (Apr. 11, 2022), at 1 (“MFA Letter”); Joseph Kamnik, Chief Regulatory

Counsel, The Options Clearing Corporation (Apr. 11, 2022), at 1 (“OCC Letter”); Fran Garritt,

Director, Securities Lending & Market Risk, and Mark Whipple, Chairman, Committee on

Securities Lending, Securities Lending Council of the Risk Management Association (Apr. 11,

2022), at 3 (“RMA Letter”); Joseph Barry, Senior Vice President and Global Head of Regulatory,

Industry and Government Affairs, State Street Corporation (Apr. 11, 2022), at 3 (“State Street

Letter”); Robert McBey, Chief Executive Officer, Wilson-Davis & Co., Inc. (Apr. 14, 2022), at 1

(“Wilson-Davis Letter”); Thomas M. Merritt, Deputy General Counsel, Virtu Financial, Inc. (Apr.

11, 2022), at 1 (“Virtu Financial Letter”); Christopher A. Iacovella, Chief Executive Officer,

American Securities Association (Apr. 12, 2022), at 1 (“ASA Letter”); Thomas Price, Managing

Director, and Lindsey Weber Keljo, Head - Asset Management Group, Securities Industry and

Financial Markets Association (Apr. 13, 2022), at 1–2 (“SIFMA April Letter”).

See, e.g., AGC April Letter, supra note 16, at 3; ASA Letter, supra note 16, at 1; letter

from Jaiden Baker (Feb. 19, 2022) (“Baker Letter”); Better Markets Letter, supra note 16, at 1;

CCMA April Letter, supra note 16, at 1; Computershare Letter, supra note 16, at 1; Cornell Law

Letter, supra note 16, at 2; DTCC Letter, supra note 16, at 2; FIA PTG Letter, supra note 16, at 1;

Fidelity Letter, supra note 16, at 2; IAA April Letter, supra note 16, at 1; ICI Letter, supra note 16,

at 1; IIAC Letter, supra note 16, at 1; Kyle 1 Letter, supra note 16, at 1; LaBree Letter, supra note

16, at 1; MFA Letter, supra note 16, at 2; MMI Letter, supra note 16, at 1; NYSE Letter, supra

note 16, at 1; OCC Letter, supra note 16, at 2; PressPage Letter, supra note 16, at 1; RMA Letter,

supra note 16, at 3; Robinson 1 Letter, supra note 16, at 1; Ryan 1 Letter, supra note 16, at 1;

SIFMA April Letter, supra note 16, at 3; STA Letter, supra note 16, at 2; State Street Letter, supra

note 16, at 3; Stauts Letter, supra note 16, at 1; Stewart Letter, supra note 16, at 1; Wilson-Davis

Letter, supra note 16, at 1; letter from Rebecca Womack (Feb. 18, 2022) (“Womack Letter”); Virtu

Financial Letter, supra note 16, at 3; Zach Letter, supra note 16, at 1.

See, e.g., Calaf Letter, supra note 16; letter from Degen Mahdere (Feb. 17, 2022)

(“Mahdere Letter”); letter from Adam Rathbone (Feb. 17, 2022) (“Rathbone Letter”); letter from

Hunter Gage Seeton (Feb. 18, 2022) (“Seeton Letter”); letter from Sam Oakes (Feb. 19, 2022)

(“Oakes Letter”); letter from Matthew Risse (Feb. 19, 2022) (“Risse Letter”); letter from Ryan

Webster (Oct. 31, 2022) (“Webster Letter”). Several of the comment letters referred to “T+0”

Conformed to Federal Register version

were silent as to the Commission’s proposal to shorten the settlement cycle to T+1, but expressed

the view that a T+0 settlement cycle should be implemented either immediately or as soon as

possible.19

Commenters supporting the Commission’s proposal to shorten the standard settlement

cycle to T+1 cited a number of benefits that a T+1 settlement cycle would deliver to market

participants. For example, comment letters supporting a move to T+1 stated that shortening the

settlement cycle to T+1 would result in reductions to existing levels of risk to central

counterparties (“CCPs”) and market participants (including credit, market and liquidity risk), 20

lower margin requirements,21 improved capital liquidity,22 improvements to post-trade processing

without explaining that term. However, the T+1 Proposing Release defines T+0 as settlement no

later than the end of trade date. See T+1 Proposing Release, supra note 2, at 10436, 10438.

See, e.g., letter from Mark C. (Feb. 19, 2022) (“Mark C. Letter”); letter from Saul Nevarez

(Feb. 19, 2022) (“Nevarez Letter”); letter from Clinton Lawler (Feb. 19, 2022) (“Lawler Letter”);

letter from Alex McKay (Feb. 19, 2022) (“McKay Letter”).

See, e.g., DTCC Letter, supra note 16, at 2–3; Fidelity Letter, supra note 16, at 2; IAA

April Letter, supra note 16, at 1; ICI Letter, supra note 16, at 1, 3; MFA Letter, supra note 16, at

1; OCC Letter, supra note 16, at 2; RMA Letter, supra note 16, at 3; SIFMA April Letter, supra

note 16, at 2; State Street Letter, supra note 16, at 4.

See, e.g., Cornell Law Letter, supra note 16, at 3; DTCC Letter, supra note 16, at 2–3;

Fidelity Letter, supra note 16, at 2; MMI Letter, supra note 16, at 2; State Street Letter, supra note

16, at 4.

See, e.g., DTCC Letter, supra note 16, at 2–3; MMI Letter, supra note 16, at 2; State Street

Letter, supra note 16, at 4.

Conformed to Federal Register version

and operational efficiency,23 increased financial stability,24 and reduced systemic risk in the

financial system.25

In addition, several comment letters stated that shortening the settlement cycle to T+1

would benefit retail investors.26 For example, one commenter stated that retail investors would

benefit from a move to T+1 through increased certainty, safety, and security in the financial

system; access to the proceeds, or purchases, of their securities transactions a day earlier; and

aligning the settlement cycles for ETF transactions (which now settle on T+2) with the settlement

cycle for mutual funds (which typically settle on T+1).27 Another commenter similarly stated that

investors would benefit from earlier access to the proceeds of their securities transactions if the

settlement cycle is shortened to T+1.28

See, e.g., Cornell Law Letter, supra note 16, at 3; DTCC Letter, supra note 16, at 2–3; IAA

April Letter, supra note 16, at 1; RMA Letter, supra note 16, at 3; State Street Letter, supra note

16, at 4.

See, e.g., ICI Letter, supra note 16, at 1; MMI Letter, supra note 16, at 2.

See, e.g., Fidelity Letter, supra note 16, at 2; MFA Letter, supra note 16, at 1; MMI Letter,

supra note 16, at 2; RMA Letter, supra note 16, at 3;

See, e.g., Better Markets Letter, supra note 16, at 2–3; Fidelity Letter, supra note 16, at 2;

IIAC Letter, supra note 16, at 1; LaBree Letter, supra note 16, at 1; MMI Letter, supra note 16, at

2; Robinson 1 Letter, supra note 16, at 1; Ryan 1 Letter, supra note 16, at 1; Stauts Letter, supra

note 16, at 1; letter from Tate Winter (Feb. 17, 2022) (“Winter Letter”).

See Fidelity Letter, supra note 16, at 2; see also ICI Letter, supra note 16, at 3 (stating that

a T+1 settlement cycle would enhance funds’ cash and liquidity management; given that fund

shares typically settle on a T+1 basis, a shorter settlement cycle would help align the settlement of

a fund’s portfolio securities and the settlement of its shares).

See Cornell Law Letter, supra note 16, at 3 (“If [the Commission’s T+1 proposal] were

adopted, buyers and sellers would have access to their proceeds an entire day earlier relative to the

T+2 settlement cycle. If the public comments submitted to date are any indication, this is of

paramount concern to the lay investor.”).

Conformed to Federal Register version

The Commission also received comment letters that raised concerns regarding the

Commission’s proposal to shorten the standard settlement cycle to T+1.29 These commenters,

some of which were supportive of shortening the settlement cycle as a general matter, raised

concerns about the prospective impact of mismatched settlement cycles across global markets that

would result if the settlement cycle in the U.S. is shortened to T+1 without global coordination and

harmonization of settlement cycles.30 For example, a comment letter submitted by an industry

association representing the alternative investment industry stated that the T+1 Proposing Release

“raises considerable risks for asset managers with primary or significant exposure to markets that

will remain at T+2.”31 The comment letter further stated that “[i]n absence of further global

coordination, the resulting market misalignment from the move to T+1 poses a number of harmful

unintended consequences to these asset managers, their counterparties and overall market health

See, e.g., letters from Jiří Król, Deputy CEO, Global Head of Government Affairs,

Alternative Investment Management Association (Apr. 11, 2022), at 2 (“AIMA Letter”)

(commending the Commission’s intended efforts to reduce risk in the U.S. settlement cycle and

improve efficiency in post-trade processing); Kristin Swenton Hochstein et al., International

Securities Association for Institutional Trade Communication (Apr. 8, 2022), at 2–7 (“ISITC

Letter”) (not advocating for or against shortening the U.S. settlement cycle to T+1, but identifying

certain challenges associated with moving to T+1); Scott Pintoff, General Counsel, MarketAxess

Holdings Inc. (Apr. 11, 2022), at 1 (“MarketAxess Letter”) (generally favoring a shortening of the

standard settlement cycle for most bond transactions from T+2 to T+1); State Street Letter, supra

note 16, at 4; Virtu Financial Letter, supra note 16, at 2–3.

Several of the comment letters that raised concerns regarding the Commission’s proposal to

shorten the settlement cycle to T+1 also raised concerns regarding proposed Rule 15c6-2. Those

comments are discussed separately in Part III.B below.

AIMA Letter, supra note 29, at 2. The AIMA Letter also cites to a letter AIMA submitted

to Commission staff on October 27, 2021, which further details the concerns raised in the AIMA

Letter. AIMA’s 2021 submission to Commission staff was resubmitted to the Commission as an

Annex to the AIMA Letter.

Conformed to Federal Register version

and stability.”32 The commenter’s letter references specifically “misalignment concerns” relating

to FX settlement risk,33 international banking and coordination issues, and collateral/liquidity

risk.34

With respect to FX settlement risk, the commenter stated that accelerating the U.S.

settlement cycle to T+1 raises the risk that transaction funding dependent on FX “may not occur on

time.”35 The commenter further stated that alternative sources of funding for U.S. trades on T+1

may therefore need to be in place, which may increase costs and create allocation inefficiencies

that may dissuade participation in U.S. markets.36

Id.

The comment letters that use the term “FX” do not define the term, but “FX” is commonly

used to refer to foreign currency exchange. Market participants often rely on FX trades executed

in the “spot” markets in order to fund securities transactions in the U.S. markets that settle in U.S.

dollars, and the settlement cycle for spot FX transactions is typically T+2. However, spot

transactions in certain FX pairs (e.g., U.S. dollars vs. Canadian dollars) settle on T+1.

AIMA Letter, supra note 29, at 5–6. The commenter explained its concerns relating to

international banking and coordination issues by stating that “the rigid deadlines of banking

systems pose a significant risk, as do simple time zone or calendar differences that otherwise can

be accommodated by a T+2 settlement cycle.” Id. at 5. The commenter further stated that foreign

banking deadlines and cutoff times for transaction processing in related markets must be carefully

re-examined to ensure activity can be harmonized in an accelerated U.S. settlement framework.

Id.

Id. The commenter further stated that settlement of FX transactions generally occurs on

T+2, “although the period of irrevocability—between the unilateral cancellation deadline for the

sold currency and actual receipt of the bought currency—can extend well beyond T+1.” Id.

Id. The commenter further stated that “unilateral cancelation deadlines may need to be

considered” for FX transactions. Id. The length of such deadlines may impact when an FX

transaction can be settled, in turn affecting the time it may take to secure funding for a securities

transaction. The T+1 Report also states that such unilateral cancelation deadlines may need to be

considered, and discusses how these deadlines may impact asset managers if the settlement cycle

for securities transactions is shortened to T+1. See T+1 Report, infra note 61, at 17. The term

“unilateral cancelation deadline” generally refers to the point in time after which a bank is no

longer guaranteed that it can recall, rescind or cancel (with certainty) a previously submitted

Conformed to Federal Register version

With respect to the commenter’s concerns regarding collateral and liquidity risks, the

commenter stated that the above-described FX and coordination issues threaten asset managers’

ability to ensure funding is available in time to settle their U.S. trades on T+1.37 According to the

commenter, uncertainty regarding collateral for settlement may mean that foreign asset managers

would need to redeem money market funds to meet their financing needs, or forego transacting in

U.S. markets in order to comply with the accelerated settlement requirements.38 Ultimately, the

commenter stated, trade financing issues will lead to both significantly lower trading volume and

lower overall liquidity, which pose a very real risk to overall market health and stability.39

Another commenter was concerned that there may not be sufficient time for investment

advisers to match foreign currency amounts to settle all trades on T+1, citing various factors that

would make it costly and difficult for investment advisers to execute FX after the U.S. market

close.40 This commenter also stated that because FX transactions largely settle on a T+2 basis,

payment instruction. This deadline varies depending on the currency pair being settled,

correspondent payment system practices, and operational, service and legal arrangements. See

Bank for International Settlements, SUPERVISORY GUIDANCE FOR MANAGING RISKS ASSOCIATED

WITH THE SETTLEMENT OF FOREIGN EXCHANGE TRANSACTIONS (Feb. 2013), available at

https://www.bis.org/publ/bcbs241.pdf. See infra notes 617–619 and accompanying text (further

discussing the anticipated economic effects resulting from mismatched settlement cycles).

AIMA Letter, supra note 29, at 5.

Id.

See IAA October Letter, infra note 222, at 3 (observing that there are circumstances in

which a U.S.-based FX trading desk will switch over to its Asia-based FX trading desk upon the

U.S. market close to provide ongoing liquidity, but not on Friday evenings, and certain asset

owners and managers, including Sovereign Wealth Funds, only trade from their country of

domicile).

Conformed to Federal Register version

market participants that seek to fund a cross-border securities transaction with the proceeds of an

FX transaction would be required to settle the securities transaction before the proceeds of the FX

transaction become available and pre-fund these securities transactions, which would potentially

adversely impact client performance and increase operating and settlement risk for advisers. The

commenter said that while both domestic and internationally based investment advisers would be

impacted by these issues, non-U.S.-based investment advisers would face additional expenses

because they would need to set up an FX trading and settlement presence in the U.S., or add staff

abroad to create, execute, and settle FX transactions to meet a T+1 timeline.41

Another commenter that operates a broker-dealer and an electronic trading platform for

corporate bonds stated that it had “serious reservations regarding the impact the proposed

amendments to Rule 15c6-1(a) and Rule 15c6-2 will have on cross border trading unless, and until,

other global financial markets also shorten their settlement cycle.”42 Specifically, the commenter

stated that if the U.S. settlement cycle is shortened to T+1 while other major global financial

centers remain on a T+2 settlement cycle, “there will be increased operational cost and significant

settlement risks associated with multi-leg cross border transactions.”43

The commenter further stated that it expects mismatched settlement cycles would result in

increased financing costs associated with transactions in which a U.S. market participant is selling

Id. at 4 (suggesting certain actions the Commission could take to reduce disruption in FX

markets, such as by (i) working with other regulators and market participants to support the move

to T+1 by, among other things, modifying the FX and equity trading day(s) in the U.S., and (ii)

“allow[ing] for a mismatch of FX settlement dates as a valid reason for T+2 settlement

arrangements without it breaching an investment adviser’s best execution obligation”).

MarketAxess Letter, supra note 29, at 1.

Id. at 2.

Conformed to Federal Register version

to a cross-border participant because “we will be forced to receive (and pay for) a securities

position on T+1 for the U.S. leg, but generally be unable to onward deliver the position on the

foreign leg until T+2.”44 In this scenario, the commenter stated that it would need to fund the

position until the next settlement cycle.45

Additionally, the commenter stated its expectation that there will be a significant number of

settlement fails when the U.S. participant is buying bonds and the cross-border participant is

unable to deliver the bonds until T+2.46 The commenter further argued that if the Commission’s

T+1 proposal is adopted and other financial markets do not move in lock-step, the increase in

financing costs and settlement fails in connection with cross-border transactions may force brokerdealers to decrease or cease offering cross-border services to their clients.47 Lastly, the commenter

argued that any decrease or cessation of cross-border trading ultimately will reduce liquidity for

U.S. investors.48 For these reasons, the commenter encouraged the Commission to work with

international regulators to coordinate a move to T+1 settlement on a global basis if possible.49

Id.

Conformed to Federal Register version

Another commenter stated that there may not be sufficient time for investment advisers to

match foreign currency amounts to settle all trades on T+1.50 In particular the comment

highlighted the lack of time between the closure of the equity markets (at 4:00 p.m. ET in the U.S.)

and the time when U.S.-based FX trading desks close for the evening (usually an hour or so

later).51 The commenter also discussed the reasons it believed that “Far East” trading desks may

not seamlessly take over after the close of U.S.-based FX trading desks.52 According to the

commenter, these issues may impact both domestic and internationally based investment

advisers.53 However, in the commenter’s view, non-U.S. based investment advisers will face

additional expenses, as they will either be forced to set up an FX trading and settlement presence

in North America (or Asia) or add staff abroad to create, execute, and settle FX transactions to

meet a T+1 timeline.54

Finally, the commenter suggested certain “options” for actions that could be taken to

reduce disruption in the FX markets. While recognizing that some of these options would be

“troublesome to implement,” the commenter stated that two would be the most effective in

alleviating the commenter’s concerns.55 First, the commenter suggested that appropriate market

Letter from Suzanne Quinn, Head of North America Compliance, Ballie Gifford Overseas

Limited (Nov. 17, 2022), at 1 (“Ballie Gifford Letter”).

Id.

Id. at 1–2.

Id. at 2.

Id.

Conformed to Federal Register version

authorities mandate a change in “the official equity trading day” for U.S. markets to close one hour

earlier, at 3:00 p.m. rather than 4:00 p.m. ET, which would provide firms more time to match

trades and ensure the settlement FX is in place for the following day, without negatively impacting

liquidity and trading volume.56 Second, the commenter stated that the Commission could allow for

a mismatch of FX settlement dates as a valid reason for T+2 settlement arrangements “without

[such arrangements] breaching an investment adviser’s best execution obligation.”57

In the proposing release, the Commission asked commenters whether efforts to shorten the

standard settlement cycle to T+1 is a logical step on the path to T+0 settlement, or would moving

to a T+1 standard settlement cycle require investments or processes that would be outdated or

unnecessary in a T+0 environment.58 Although no commenters discussed whether moving to a

T+1 standard settlement cycle would require investments or processes that would be outdated or

unnecessary in a T+0 environment, as discussed below, the Commission received numerous

comments relating to T+0 settlement.

Several of the commenters that supported moving to a T+1 settlement cycle also stated that

moving to a T+0 settlement cycle, or instantaneous settlement, is either not achievable or not

practical in the near term.59 These commenters cited several challenges associated with a

Id.

Id.; see also supra note 41 and accompanying text (discussing the same, including other

related recommendations from the IAA).

See T+1 Proposing Release, supra note 2, at 10450.

See, e.g., DTCC Letter, supra note 16, at 6 (“[W]e do not believe the industry is currently

ready to move to a T+0 standard settlement cycle . . .”); FIA PTG Letter, supra note 16, at 1–2;

MMI Letter, supra note 16, at 3 (expressing commenter’s concern that a move to T+0 would be

potentially infeasible in the short term); NYSE Group Letter, supra note 16, at 2 (expressing

commenter’s view that T+0 settlement cycle is not practical in the near term); OCC Letter, supra

Conformed to Federal Register version

prospective move to a T+0 settlement cycle, 60 including in the case of several comment letters,

many of the same challenges that were cited in the “T+1 Report,” which the Commission

discussed in the T+1 Proposing Release.61 For example, one commenter stated that moving to T+0

“would require the redesign of many securities processing functions, including [i]nstitutional

[t]rade [p]rocessing, ETFs processing, options, margin investing, securities lending, FX markets,

and global settlements across jurisdictions to meet the regulatory, operational, and contractual

requirements.”62 Another commenter stated that:

[I]mplementing T+0 as the required standard settlement cycle across

the industry remains a significant undertaking that would require

foundational changes to the way securities trade and settle today.

note 16, at 4 (“OCC agrees with the consensus view reflected in [the T+1 Report] that same-day

settlement is not achievable in the short-term, and that moving towards shortening the settlement

cycle to T+0 would require an overhaul of the U.S. clearing and settlement infrastructure.”);

SIFMA April Letter, supra note 16, at 15–20 (expressing commenter’s view that T+0 settlement is

not practical in the near term); Virtu Financial Letter, supra note 16, at 3–4 (“T+0 [settlement] is

not feasible or attainable at this time.”).

See, e.g., DTCC Letter, supra note 16, at 5; NYSE Group Letter, supra note 16, at 2 (“T+0

settlement cycle would pose significant challenges to the industry, including eliminating the

benefits of netting for settling trades, requiring that every transaction be funded instantly and

individually, and additional complexities for foreign investors, options, ETFs and futures.”);

SIFMA April Letter, supra note 16, at 16 (describing numerous challenges associated with moving

to T+0 settlement); Virtu Financial Letter, supra note 16, at 3–4 (describing various challenges

associated with moving to T+0 settlement); see also State Street Letter, supra note 16, at 5–10

(providing high-level observations on the implications of same-day settlement for various

operational processes and investment products which are central to the custody bank business

model).

See T+1 Proposing Release, supra note 2, at 10438, 10445 (citing to Deloitte & Touche

LLP, the Depository Trust and Clearing Corporation, the Investment Company Institute, and

Securities Industry and Financial Markets Association, Accelerating the U.S. Securities Settlement

Cycle to T+1 (Dec. 1, 2021) (“T+1 Report”), https://www.sifma.org/wpcontent/uploads/2021/12/Accelerating-the-U.S.-Securities-Settlement-Cycle-to-T1-December-12021.pdf).

SIFMA April Letter, supra note 16, at 16 (quoting T+1 Report, supra note 61).

Conformed to Federal Register version

Moreover, moving the entire industry to a T+0 standard settlement

cycle would necessitate significant changes in industry conventions

and major investments in automating processes and technology that

will greatly exceed similar investments needed for T+1.63

Another commenter argued that moving to T+0 would require a “rewrite” of not only the

current clearing and settlement infrastructure, but also the associated banking, securities custodian,

and money market systems that are critical components of the clearing and settlement ecosystem.64

This commenter further stated that moving to T+0 settlement would potentially require

implementation of real-time currency movements during hours of the day at which such processes

are not feasible.65 In particular, the commenter argued, “[n]ot only would this require major

system upgrades, but as critical components of the settlement process, banks, wire systems,

custodians, lenders, and money market funds, along with related staff, would need to be available

well into the evening.”66

Another commenter stated that T+0 settlement would present logistical concerns around

borrowing and lending and would likely introduce challenges for batch processing.67 More

specifically, this commenter stated that while it is possible that trades could be netted throughout

the day, it is unlikely that batch processing could capture all trades by the market close, and such

DTCC Letter, supra note 16, at 5

FIA PTG Letter, supra note 16, at 1.

Id.

Id. at 1–2.

See Virtu Financial Letter, supra note 16, at 3–4.

Conformed to Federal Register version

netting could lead to multiple intraday margin calls by clearing agencies.68 The same commenter

stated that in a T+0 settlement environment it would be very difficult for investment advisers to

process real-time trade allocations.69 Additionally, the commenter argued that prime brokers

would be required to overhaul their processes and technology to capture allocations, calculate

margin requirements, ensure margin accuracy, and facilitate trade reporting and disaffirmations.70

Finally, the commenter stated that moving to T+0 would require “complete dematerialization of

securities.”71

Other commenters argued that any move to shorten the settlement cycle to T+0 should be

considered only after a successful transition to T+1.72 One such commenter stated that once the

industry has established the full scope of work required for T+1 and is actively progressing

towards implementation, the industry should conduct a “full review” to identify the scope of

changes that are needed to effectuate a move to a T+0 standard settlement cycle.73

Id.

See, e.g., AGC April Letter, supra note 16, at 3–4; DTCC Letter, supra note 16, at 5; see

also letter from Isabelle S. Corbett, Global Head of Government Relations, R3 LLC, at 3 (“R3

Letter”) (supporting the view that “T+0 does not make sense today,” and stating that “further

compression from T+1 should continue to be considered”); ASA Letter, supra note 16, at 3

(arguing that the market is not prepared to move to T+0, and urging the Commission to continue to

study and solicit public feedback on moving to T+0 rather than using the Commission’s T+1

proposal as a vehicle to accelerate that shift).

See, e.g., DTCC Letter, supra note 16, at 5.

Conformed to Federal Register version

Another commenter stated that moving to a T+0 settlement cycle would require significant

industry and regulatory discussion, and technological upgrades and change, as well as the creation

and implementation of new operating models and processes in many instances,74 but believed that

the transition to a T+1 settlement cycle would be a valuable step towards T+0, as the industry

would learn lessons that can be used to evaluate if and how a T+0 settlement cycle can be achieved

in the longer term.75 However, according to the commenter, industry discussions on implementing

T+0 at this time “may inadvertently divert resources from focusing on the requirements and issues

related to delivering T+1 in the near future.”76

Those commenters supporting an immediate move to T+0 or instantaneous settlement

neither explained how either T+0 settlement or instantaneous settlement could be implemented,

nor addressed the impediments to T+0 settlement that were cited by several of the commenters

who argued that T+0 settlement is not achievable or not practical in the near term. Nor did the

comment letters supporting a T+0 settlement cycle or instantaneous settlement explain how a

settlement cycle shorter than T+1 would reduce overall levels of risk in the clearance and

settlement system. These letters generally consisted of declaratory statements to the effect that

either T+0 or instantaneous settlement is achievable now and should be implemented without

delay, while offering no factual support for these views.77

AGC April Letter, supra note 16, at 3.

See id. at 3–4.

Id. at 4.

See, e.g., Calaf Letter, supra note 16; Clemens Letter, supra note 18; Mahdere Letter,

supra note 18; Nevarez Letter, supra note 19; Oakes Letter, supra note 18; Rathbone Letter, supra

note 18; Seeton Letter, supra note 18.

Conformed to Federal Register version

Securities Excluded from Requirements under Exchange Act Rule 15c6-1

The Commission also received comment letters discussing certain types of securities that

the respective commenters believed should be excluded from the requirements under Exchange

Act Rule 15c6-1, whether through amendment to the text of the rule or via separate exemptive

relief. Two of these commenters discussed whether Rule 15c6-1 should apply to security-based

swap transactions78 and both expressed the view that the rule should not apply to such

transactions.79 One of the two commenters stated that Rule 15c6-1 is “inapt” with respect to

security-based swap transactions, which are “generally bilateral and executory in nature,” meaning

that there are numerous terms that the parties typically agree to fulfill at later dates.80 This

commenter further stated that “the [Dodd-Frank Wall Street Reform and Consumer Protection Act

(“Dodd-Frank Act”)] mandated numerous requirements for security-based swaps that address the

very credit, market and liquidity risks that, for broker-dealer transactions in securities, are

addressed by the shortening of the settlement cycle from T+2 to T+1.”81 Because security-based

See MFA Letter, supra note 16, at 2; SIFMA April Letter, supra note 16, at 11–12. As

noted in the T+1 Proposing Release, the Commission previously issued an order that exempted

security-based swaps from the requirements under Rule 15c6-1, and subsequently extended that

exemptive relief on several occasions, but the exemptive relief that previously covered compliance

with Rule 15c6-1 expired in 2020. See T+1 Proposing Release, supra note 2, at 10446 n.83.

See MFA Letter, supra note 16, at 2; SIFMA April Letter, supra note 16, at 11–12. In

addition to the comment letters discussing the prospective application of Rule 15c6-1 to securitybased swap transactions, the Commission received a small number of comment letters that

recommended the continuation and/or expansion of certain regulatory relief from Rule 15c6-1

previously provided by the Commission in certain exemptive orders. These comments are

discussed in Part II.B.5, which follows discussion of the comment letters that relate more directly

to the text of Rule 15c6-1.

SIFMA April Letter, supra note 16, at 11.

Id.

Conformed to Federal Register version

swaps are already subject to a comprehensive regulatory regime, the commenter stated, these

securities should not be subject to further regulation under the Commission’s proposal.82

The same commenter highlighted certain “key differences” between security-based swaps

and other types of securities.83 In particular, the commenter stated that for other types of

securities, such as equity or debt, settlement occurs when the buyer receives the security purchased

and the seller receives cash equaling the value of the security sold.84 For security-based swaps,

however, a final net payment is paid by one party to the other at a future point in time to which the

parties have contractually agreed.85 For all of these reasons, the commenter argued, the

Commission should provide an express exclusion for security-based swaps, and “at the very least,

any doubt caused by the reference in the [T+1 Proposing release] to security-based swaps should

be resolved by [the Commission] clarifying that counterparties to such instruments, who generally

agree to specific payment and settlement terms in writing, benefit from the existing override

provision in [Rule 15c6-1(a)].”86

The other comment letter discussing the prospective application of Rule 15c6-1 to securitybased swaps argued that the rule “should not apply to security-based swap transactions effected by

a ‘security-based swap dealer,’ which is dually registered as a broker-dealer.”87 In support of this

Id.

MFA Letter, supra note 16, at 2.

Conformed to Federal Register version

argument, the commenter stated that security-based swap transactions are typically bilateral

transactions between sophisticated counterparties who deal directly with each other, and which are

subject to unique capital, margin, and segregation requirements.88 Thus, according to the

commenter, “there is no principled basis to apply Rule 15c6-1 to security-based swap transactions

solely for the reason that a security-based swap dealer is also registered as a broker-dealer.”89

Instead, the commenter argued, the Commission should modify the rule to exempt, or further

exemptive relief should be provided for, security-based swaps “as noted in the [T+1 Proposing

Release].”90

Proposed Deletion of Rule 15c6-1(c)

The Commission received one comment letter responding to the proposed deletion of

paragraph (c) of Rule 15c6-1, and the commenter recommended that paragraph (c) be retained in a

modified form, rather than being deleted. 91 Specifically, the commenter recommended that

paragraph (c) be retained but modified to allow parties to settle on T+2, rather than T+1, in the

case of a firm commitment underwriting.92 Under the commenter’s recommended modification,

Rule 15c6-1(c) would provide a “fallback” to parties without an explicit agreement at the time of

the transaction to settle on T+2 if unforeseen circumstances interfere with either party’s ability to

See id.

Id.

See id.; see also id. at n.11 (citing to T+1 Proposing Release, supra note 2, at 10446 n.83).

See SIFMA April Letter, supra note 16, at 9–11.

See id. at 10.

Conformed to Federal Register version

conform to a T+1 settlement date.93 The commenter also supported the continued retention of

paragraph (d) of Rule 15c6-1, stating that paragraph (d) is “critically important for debt and

preferred equity offerings.”94

In support of the view that the Commission should retain a modified version of Rule 15c61(c), the commenter stated that reliance on paragraphs (a) and (d) would be insufficient to prevent

transactions for securities priced after 4:30 p.m. ET from failing to settle.95 Specifically, the

commenter stated that while paragraphs (a) and (d) allow parties to agree to a longer settlement

cycle, in order for the parties to avail themselves of that extended settlement date they must reach

that agreement at the time of the transaction.96

The commenter further stated that, “particularly in the context of common stock offerings,

where an extended settlement is extremely difficult to implement, if specific issues are identified

prior to pricing of the offering, in practically all such instances, the pricing of the offering would

be delayed.”97 According to the commenter, the parties are “by definition” unable to foresee

“unanticipated issues” prior to pricing of the offering.98

Thus, the commenter stated that paragraphs (a) and (d) of Rule 15c6-1 would not allow

parties to agree to a longer settlement cycle when circumstances unforeseen at the time of the

Id. at 10–11.

Id. at 11.

See id. at 10.

See id.

Id.

Conformed to Federal Register version

pricing of the transaction arise that prevent settlement on T+1.99 For example, according to the

commenter, “it is not unusual to face unanticipated issues relating to transfer agents, legend

removal, local law matters (including local court approval), medallion guarantees or non-U.S.

parties.”100 Finally, in support of the commenter’s belief that eliminating paragraph (c), together

with a move to T+1, would lead to increased failures to settle trades with respect to firm

commitment underwritings, the commenter cited the limited timeframe that would be available “to

resolve issues” prior to settlement on T+1.101

Retention of Exchange Act Rule 15c6-1(d)

Paragraph (d) of Rule 15c6-1 provides that for purposes of paragraphs (a) and (c) of the

rule, parties to a contract shall be deemed to have expressly agreed to an alternate date for payment

of funds and delivery of securities at the time of the transaction for a contract for the sale for cash

of securities pursuant to a firm commitment offering if the managing underwriter and the issuer

have agreed to such date for all securities sold pursuant to such offering and the parties to the

contract have not expressly agreed to another date for payment of funds and delivery of securities

at the time of the transaction.102 The proposed rule text did not make any changes to paragraph (d)

of Rule 15c6-1 other than technical conforming changes that would have been necessary if the

Commission adopted the proposed deletion of paragraph (c) of the rule.103

See id.

100

Id.

101

Id.

102

See 17 CFR 240.15c6-1(d).

103

See T+1 Proposing Release, supra note 2, at 10448–49.

Conformed to Federal Register version

The Commission received one comment letter supporting the retention of paragraph (d)

because, according to the commenter, it is “critically important for debt and preferred equity

offerings.”104 However the comment letter did not further explain why paragraph (d) is important

for such offerings.

Exemptive Orders under Exchange Act Rule 15c6-1(b)

The T+1 Proposing Release stated that, pursuant to Rule 15c6-1(b), the Commission has

granted certain exemptions from the requirements under Rule 15c6-1, including an exemption for

securities that do not have facilities for transfer or delivery in the U.S.105 The T+1 Proposing

Release requested public comment on whether the conditions set forth in the Commission’s

exemptive order for securities traded outside the U.S. are still appropriate, and whether the

exemption should be modified.106 The Commission received several comment letters discussing

whether the Commission should continue the exemption for foreign securities if the settlement

cycle were shortened to T+1, and all of these commenters urged the Commission to retain the

exemption, and/or recommended that the Commission make certain modifications to the

exemption that would expand the scope of the exemption.107

One commenter recommended that the Commission retain this exemption and explicitly

state in the adopting release that the permissible settlement period for securities traded outside of

104

See SIFMA April Letter, supra note 16, at 11.

105

See T+1 Proposing Release, supra note 2, at 10446–47 (citing to Exchange Act Release

No. 35750 (May 22, 1995), 60 FR 27994, 27995 (May 26, 1995)).

106

See T+1 Proposing Release, supra note 2, at 10451.

107

See Fidelity Letter, supra note 16, at 5; SIFMA April Letter, supra note 16, at 1, 7–9; Virtu

Financial Letter, supra note 16, at 2; see also ICI Letter, supra note 16, at 4.

Conformed to Federal Register version

the U.S. should be defined by the local market.108 The commenter stated that settling trades with

different time zones is already a difficult process and accelerating the settlement cycle for these

securities would make cross-border transactions even more challenging.109

Another commenter stated that the exemption for foreign securities should be retained and

modified to address “certain product misalignment matters.”110 This commenter observed that in

many non-U.S. markets today, trades settle on a T+2 basis.111 Therefore, the commenter stated,

unless those markets transition to a T+1 settlement timeframe when the U.S. moves to a T+1 cycle,

U.S. broker-dealers will not be able to comply with Rule 15c6-1 for trades in foreign securities.112

Additionally, according to the commenter, retaining the exemption for transactions in

foreign securities in non-U.S. markets would not address the misalignment of settlement cycles

between U.S. securities and non-U.S. securities that impacts U.S. securities that are exchangeable

for a foreign security or a basket of foreign securities.113 The commenter highlighted in particular

ADRs, and ETFs with an underlying basket of foreign securities, which according to the

commenter, illustrate this misalignment.114

108

See Fidelity Letter, supra note 16, at 5.

109

See id.

110

SIFMA April Letter, supra note 16, at 7–9.

111

Id. at 7.

112

See id.

113

See id. at 8.

See id. As noted in the T+1 Proposing Release, under the Commission’s existing

exemption, an ADR is considered a separate security from the underlying security. Thus, if there

are no transfer facilities in the U.S. for a foreign security but there are transfer facilities for an

114

Conformed to Federal Register version

With respect to ADRs, the commenter stated that market makers and other market

participants may purchase foreign shares and sell related ADRs in the U.S. on the same trading

day, and thus timely settle the sale of the ADRs using the newly created ADRs.115 According to

the commenter, this type of trade will not be possible if the underlying foreign shares settle on T+2

and the related ADR is required to settle on T+1.116 The result, the commenter stated, is likely to

be wider bid-ask spreads for the ADR because market makers must take into account the additional

cost of borrowing securities and other financing costs to avoid settlement failures.117 Additionally,

the commenter argued, the incidence of fails would likely increase as a result of the misaligned

settlement cycles, particularly where it is not possible to borrow securities to make delivery, and a

knock-on effect could be to increase the incidence of buy-ins as well.118

Separately, the same commenter argued that the ETF creation/redemption process is

impacted by the misalignment of global securities transaction settlement cycles where the basket of

securities underlying an ETF includes foreign securities.119 In explaining this view, the commenter

observed that ETF shares are created by an authorized participant (“AP”) depositing the daily

creation basket of shares (and/or cash) with the ETF and, in exchange for the deposit of the basket,

ADR based on such foreign security, only the foreign security will be exempt from Rule 15c6-1.

See T+1 Proposing Release, supra note 2, at 10446.

115

See SIFMA April Letter, supra note 16, at 8.

116

See id.

117

See id.

118

See id.

119

See id.

Conformed to Federal Register version

the ETF issues to the AP a specified number of ETF shares, referred to as a “creation unit.”120 The

commenter further stated that if foreign securities comprise some or all of the ETF creation basket,

the AP will typically need to purchase those securities in the local market.121

Another commenter urged the Commission to “exempt from T+1 settlement” U.S.-listed

ETFs with baskets that contain foreign securities and ADRs.122 In support of this

recommendation, the commenter stated that the misalignment in settlement cycles between the

U.S. and foreign jurisdictions that continue to settle on a T+2 basis, coupled with time zone

differences, may increase certain risks, such as failed trades, accrual differences, net asset value

miscalculations, and investment guideline breaches. The same commenter stated that due to the

resulting misalignment in settlement cycles between the U.S. and foreign markets upon

transitioning to T+1, an ADR provider may incur borrowing and other costs related to the

underlying foreign security to facilitate T+1 settlement of the ADR.123 According to the

commenter, these costs would likely be passed down to investors and thus make it more expensive

to obtain investment exposure to foreign markets.124

As discussed in the T+1 Proposing Release, the Commission has also previously granted a

separate exemption from Rule 15c6-1 for contracts for the purchase or sale of any security issued

120

Id.

121

See id.

122

See ICI Letter, supra note 16, at 4; see also Virtu Financial Letter, supra note 16, at 2

(recommending that for primary creations and redemptions alternative settlement date options be

available so the foreign security basket and the U.S. ETF settlement can be “in sync”).

123

See id.

124

See id.

Conformed to Federal Register version

by an insurance company (as defined in section 2(a)(17) of the Investment Company Act) that is

funded by or participates in a “separate account” (as defined in section 2(a)(37) of the Investment

Company Act), including a variable annuity contract or a variable life insurance contract, or any

other insurance contract registered as a security under the Securities Act of 1933 (“Securities

Act”).125 In granting this exemption, the Commission recognized that “the mechanics of purchases

and redemptions of insurance securities products are distinct from those of other securities and

that, because of the time required to complete necessary preparations, such transactions typically

require more protracted settlement periods,” and that “compliance with the unique requirements of

state and Federal law, as well as of the particular administrative procedures, applicable to

insurance securities products demands additional time beyond the standard settlement process.”126

The T+1 Proposing Release requested public comment on whether the conditions set forth in the

exemptive order for insurance products continued to be appropriate, or if they should be modified.

The three commenters that discussed this exemption uniformly agreed that the conditions

and considerations set forth in the Insurance Products Exemption Order apply as much today, if

not with greater force, as when the Commission adopted the exemption in 1995 (and which it left

in place in 2017), and that the exemption should be preserved.127 In support of this view, one

125

See T+1 Proposing Release, supra note 2, at 10447.

126

Exchange Act Release No. 35815 (June 6, 1995), 60 FR 30906, 30907 (June 12, 1995)

(“Insurance Products Exemption Order”).

127

See letter from Eversheds Sutherland (US) LLP for the Committee of Annuity Insurers

(Apr. 11, 2022), at 1–3; (“CAI Letter”); Fidelity Letter, supra note 16, at 5–6; SIFMA April Letter,

supra note 16, at 9. These commenters also cited to comment letters that had been submitted in

response to the T+2 Proposing Release in support of retaining the Insurance Products Exemption

Order.

Conformed to Federal Register version

commenter said it was not aware of any material change of circumstances that would warrant a

change.128 Another commenter observed that the same administrative processes and regulatory

requirements under state and Federal law that warranted the insurance products exemption were

even more relevant for T+1 since insurance products have only grown more complex since the

industry transitioned to T+2 in 2017.129

Final Rule and Discussion

Amendment to Exchange Act Rule 15c6-1(a)

The Commission is amending paragraph (a) of Exchange Act Rule 15c6-1 as proposed.

Rule 15c6-1(a) will prohibit broker-dealers from effecting or entering into a contract for the

purchase or sale of a security (other than an exempted security, a government security, a municipal

security, commercial paper, bankers’ acceptances, or commercial bills) that provides for payment

of funds and delivery of securities later than the first business day after the date of the contract

unless otherwise expressly agreed to by the parties at the time of the transaction. Subject to the

exceptions enumerated in paragraphs (a) and (b) of the rule, the prohibition in paragraph (a) of

Rule 15c6-1 applies to all securities. However, as discussed in Part II.C.3 below, the Commission

is amending paragraph (b) of Rule 15c6-1 to exclude security-based swaps from the requirements

under paragraphs (a) and (c) of the rule.

See SIFMA April Letter, supra note 16, at 9 (stating that “in addition to retaining the

exemptions, SIFMA recommends that the exemptions either be codified in Rule 15c6-1(b), or that

the Commission issue a new order to replace the orders issued in 1995 to facilitate access to the

terms of the exemptions and to facilitate compliance with their terms”). This statement appears to

collectively reference the exemption for insurance products, as well as the exemption for securities

that do not have facilities for transfer and delivery in the U.S., both of which were issued in 1995.

128

129

See Fidelity Letter, supra note 16, at 6.

Conformed to Federal Register version

The Commission’s reasons for amending Rule 15c6-1(a) to shorten the standard settlement

cycle to T+1 are consistent with those articulated in the T+1 Proposing Release,130 and many of the

comment letters submitted in response to that release. First, the Commission continues to believe

that shortening the standard settlement cycle to T+1 would result in a reduction in the number and

total value of unsettled trades that exist at any point in time. Assuming that trading volume

remains constant, shortening the standard settlement cycle to T+1 should also decrease the total

market value of all unsettled trades in the U.S. clearance and settlement system. This reduction in

the number and total value of unsettled securities transactions should result in a reduction in

market participants’ overall exposure to market risk that arises from such transactions.

As explained in the T+1 Proposing Release, the Commission believes that shortening the

standard settlement cycle to T+1 should also reduce CCP exposure to credit, market, and liquidity

risk arising from its obligations to its participants, promoting the stability of the CCP and thereby

reducing the potential for systemic risk to transmit through the financial system.131 Reducing these

risks to the CCP would enable the CCP to reduce the overall size of the financial resources that the

CCP requires of its participants, lowering costs to the CCP’s participants, and potentially their

customers (i.e., other market participants and investors).

As further explained in the T+1 Proposing Release, in periods of market stress, liquidity

demands imposed by the CCP on its participants, such as in the form of intraday margin calls, can

produce procyclical effects that reduce overall market liquidity.132 The T+1 Proposing Release

130

See T+1 Proposing Release, supra note 2, at 10447–49.

131

See id. at 10448.

132

See id.

Conformed to Federal Register version

further stated that reducing the CCP’s liquidity exposure by shortening the settlement cycle can

help limit this potential for procyclicality, enhancing the ability of the CCP to serve as a source of

stability and efficiency in the national clearance and settlement system.133

Shortening the standard settlement cycle to T+1 also would enable investors to access the

proceeds of their securities transactions sooner than they are able to in the current T+2

environment. Specifically, in a T+1 environment, sellers would have access to cash proceeds one

day sooner and buyers would see purchased securities in their accounts one day earlier relative to a

T+2 standard settlement cycle.

Finally, market participants have already taken significant steps toward identifying the

industry requirements and timelines for moving to T+1, and have made substantial progress in

terms of planning such a move.134 Due to these efforts, the Commission believes that a successful

move to T+1 settlement can occur by the compliance date,135 and the Commission believes that

delaying such a move would allow undue risk to continue to exist in the U.S. clearance and

settlement system.

In response to the comment letters focusing on the challenges and costs associated with the

prospective misalignment of securities settlement cycles that may follow a move to T+1 in the

133

See id.

134

See, e.g., Deloitte, DTCC, ICI, and SIFMA, T+1 Securities Settlement Industry

Implementation Playbook (Aug. 2022, updated Dec. 2022) (“T+1 Playbook”),

https://www.dtcc.com/ust1/industry-playbook. Additional information and documentation related

to the industry’s ongoing planning related to the prospective move to a T+1 settlement cycle is also

publicly available at https://www.dtcc.com/ust1/industry-playbook.

135

See infra Part VII.A (discussing the compliance date of May 28, 2024, for the amendments

to Exchange Act Rule 15c6-1(a)).

Conformed to Federal Register version

U.S.,136 the Commission agrees that such misalignment will likely present some challenges that

may increase costs for certain market participants, including asset managers. For example, the

Commission recognizes that financing U.S. market transactions that settle on T+1 with the

proceeds of an FX transaction that settles on T+2 may become more difficult, and therefore more

costly, than financing of T+2 transactions is today. However, market participants can modify their

existing business practices in ways that allow their securities transactions in the U.S. to settle on

T+1.137

For example, market participants may extend the closing time for their FX trading desks, or

they may pre-fund certain T+1 transactions that would otherwise be funded by an FX transaction

that is executed on the same day as the securities transaction in the U.S. In addition, as one

commenter stated, asset managers may, in some cases, redeem money market positions, or rely on

other financial resources, to meet their financing needs.138 While the Commission acknowledges

that undertaking any of the three adjustments described here may increase certain costs for some

market participants, shortening the standard settlement cycle to T+1 will reduce other costs (e.g.,

136

See MarketAxess Letter, supra note 29, at 1–2; ICI Letter, supra note 16, at 4; Ballie

Gifford Letter, supra note 50, at 1–2.

137

The Commission observes that settlement cycles vary across asset classes. For example,

transactions in U.S. Treasury securities currently settle on a T+1 basis, and market participants use

the proceeds of FX transactions to fund transactions in U.S. Treasury securities despite

mismatched settlement cycles. See infra note 618 (discussing the same, as well as other

examples).

138

AIMA Letter, supra note 29, at 5–6.

Conformed to Federal Register version

margin charges), increase capital efficiency, and reduce risk in the U.S. clearance and settlement

system.139

With respect to the suggestion of one commenter that the “appropriate market authorities”

mandate a change in “the official equity trading day” for U.S. markets to close one hour earlier, at

3:00 p.m. rather than 4:00 p.m. ET, to provide firms with more time to match trades and ensure the

“settlement FX” is in place for the following day,140 the Commission believes that such a change is

not necessary for a successful transition to T+1 to occur, and is otherwise not justified. As

explained in the paragraph immediately above, the Commission believes that market participants

will be able to adjust their business practices to address the challenges associated with the

misalignment of the T+1 settlement cycle for securities in the U.S. markets with the T+2

settlement cycle for FX transactions. In addition, the Commission believes that the commenter’s

recommendation to shorten the length of the trading day in the U.S. equity markets specifically to

address the commenter’s concern about FX transactions could have a negative impact on the

trading activity and operations of market participants. In particular, the Commission believes that

modifying the length of the trading day would alter the existing operations of the U.S. securities

markets prior to market close in a way that is disproportionate to the impact of the Commission’s

proposal on the ability of market participants to use FX transactions to finance securities

139

See infra Part VIII.C.1 (discussing the anticipated benefits of shortening the standard

settlement cycle to T+1).

140

See Ballie Gifford Letter, supra note 50, at 2.

Conformed to Federal Register version

transactions in the U.S markets because market participants will be able to adjust their business

practices to address the challenges.141

With respect to the commenter’s suggestion that the Commission “could allow for a

mismatch of FX settlement dates as a valid reason for T+2 settlement arrangements without [such

arrangements] breaching an investment adviser’s best execution obligation,”142 as explained above,

the Commission believes that market participants will be able to adjust their business practices to

address the challenges associated with the prospective mismatch between the settlement cycles for

FX trades and the settlement cycle for securities transactions in the U.S. markets. Even if a

mismatch between the settlement time for FX transactions and a T+1 standard settlement cycle for

U.S. securities transactions raises the cost of funding some transactions, as discussed previously,

the Commission also believes that shortening the standard settlement cycle to T+1 will reduce

other costs (e.g., margin charges), increase capital efficiency, and reduce risk in the U.S. clearance

and settlement system.143 Additionally, while the commenter correctly states that the

Commission’s proposal would allow parties to extend settlement only if they reach agreement at

the time of the transaction, the commenter does not explain its understanding that “this would be

difficult to implement in the context of trades that require the settlement of FX transactions to

occur,” or that “for this reason a standing option to settle at T+2 would be more effective.”144 To

141

See infra notes 617–619 and accompanying text (further discussing the anticipated

economic effects resulting from mismatched settlement cycles).

142

See Ballie Gifford Letter, supra note 50, at 2.

143

See supra note 139 and accompanying text (further discussing the other costs that would be

reduced, as well as the increase in capital efficiency, and the reduction in risk to the U.S. clearance

and settlement system).

144

See Ballie Gifford Letter, supra note 50, at 2.

Conformed to Federal Register version

the extent the commenter is recommending that the Commission establish a separate T+2

settlement cycle for transactions that are funded using FX transactions, such an approach is not

workable because the counterparties to such transactions generally would not know whether the

transaction had been funded in this way—unless the parties agreed to disclose in advance of the

transaction the source of funding—and therefore also would not know whether to expect their

securities transaction to settle on T+1 or T+2.

The Commission has also considered the arguments submitted by one commenter that any

misalignment of settlement cycles that follows a move to T+1 in the U.S. would increase the

number of fails in connection with cross-border transactions and may force broker-dealers to

decrease or cease offering cross-border services to their clients, and ultimately will reduce liquidity

for U.S. investors.145 The commenter also specifically stated its expectation that there will be a

significant number of settlement fails when a U.S. market participant is buying bonds and a “crossborder participant” is unable to deliver the bonds until T+2.146 The Commission disagrees with

each of the commenter’s statements for the reasons explained below.

The Commission does not believe that the prospective misalignment of settlement cycles

resulting from a move to T+1 will increase the number settlement fails connected with crossborder transactions.147 While settlement fails can occur for many different reasons, market

participants will have many months to continue their planning and preparation for the move to

145

See MarketAxess Letter, supra note 29, at 1.

146

Id.

147

See infra notes 617–619 and accompanying text (further discussing the anticipated

economic effects resulting from mismatched settlement cycles).

Conformed to Federal Register version

T+1. By the time the transition to T+1 occurs, market participants will have had ample

opportunity to analyze whether any given transaction presents an unacceptable risk of a settlement

fail, and, as stated above,148 have options for adjusting their business practices to account for the

challenges associated with settlement of certain transactions in a T+1 environment, such as FX

transactions or other transactions with cross-border considerations.

With respect to the commenter’s specific statement regarding the purchase of bonds by a

U.S. market participant and the inability of a “cross-border participant” to deliver such bonds until

T+2, the Commission acknowledges that in some cases it may be difficult for market participants

to deliver bonds on T+1 when they seek to purchase the bonds in a foreign market and sell the

same bonds in the U.S. market on the same day. However, market participants will know the

timing of their settlement obligations prior to entering into contracts to purchase bonds in a foreign

market and sell them in the U.S. market. If a market participant knows that the standard settlement

cycle for the U.S. market transaction is shorter than the settlement cycle for the foreign market

transaction, it may plan to either make arrangements to purchase or borrow the bonds sufficiently

in advance of entering into the U.S. market transaction, or agree to a settlement date that is later

than T+1 for the U.S. market transaction. In cases where none of these options is viable, market

participants may also decide not to enter into the U.S. market transaction rather than entering into a

transaction that would predictably result in a settlement fail. In the Commission’s view, these

same options also may be available to market participants with respect to transactions in other

types of securities and are not unique to bond market transactions.149

148

See supra note 138 and accompanying text.

149

See infra notes 617–619 and accompanying text (further discussing the anticipated

economic effects resulting from mismatched settlement cycles).

Conformed to Federal Register version

With respect to the commenter’s concerns regarding liquidity, even if moving to a T+1

settlement cycle in the U.S. does increase the number of fails associated with certain securities

transactions in the U.S. market, it does not necessarily follow that any prospective misalignment of

settlement cycles would result in either increased fails in the U.S. market overall, or a reduction in

the amount of liquidity available to U.S. investors.150 As explained above, the Commission

expects that shortening the standard settlement cycle to T+1 will reduce risk in the clearance and

settlement system by reducing the number of unsettled transactions that exist at any given point in

time,151 and will result in increased overall liquidity in the U.S. markets. That view is also

consistent with many of the comment letters submitted in response to the T+1 Proposing

Release.152

With respect to the comment stressing the need for the Commission to work with

international regulators to coordinate a move to T+1 settlement on a global basis if possible,153 the

Commission and its staff intend to continue to work with regulators in other jurisdictions to ensure

that the move to a T+1 settlement cycle in the U.S. is successfully implemented while minimizing

any adverse impact the transition may have on market participants who engage in transactions in

both the U.S. market and foreign markets. However, the Commission believes that delaying the

transition to T+1 in the U.S. until other jurisdictions have also committed to implementing T+1 is

150

See infra Part VIII.C.4 (further discussing the anticipated impact on settlement fails and

liquidity).

151

See supra note 130 and accompanying text.

152

See supra notes 20, 22, and accompanying text.

153

Id.

Conformed to Federal Register version

not necessary for a successful transition to T+1 to occur in the U.S.154 As a general matter, the

Commission and Commission staff continue to engage with authorities in other jurisdictions

regarding regulatory changes in the U.S., including to discuss differences between U.S.

requirements and requirements in other jurisdictions, including through the Commission’s ongoing

participation in the Financial Stability Board, the International Organization of Securities

Commissions (“IOSCO”), and CPMI-IOSCO.155

Response to Comments Relating to T+0 Settlement

The Commission has carefully considered the comments it received relating to the

prospective benefits and challenges associated with moving to a T+0 settlement cycle. The

Commission believes that shortening the settlement cycle further than T+1 could ultimately

produce considerable additional benefits to investors compared with shortening the settlement

cycle to T+1. However, the Commission continues to believe that shortening the settlement cycle

to T+0 would require the industry to develop solutions to the many challenges identified by market

participants as impediments to such a move, as discussed at length in the T+1 Proposing

154

The Canadian Securities Authorities recently issued a proposal to transition the securities

markets in Canada to T+1 to align with the T+1 standard settlement cycle adopted in this release.

See Canadian Securities Administrators, Press Release, Canadian securities regulators outline steps

to support transition to T+1, Dec. 15, 2022, https://www.securitiesadministrators.ca/news/canadian-securities-regulators-outline-steps-to-support-transition-to-t1/.

155

CPMI-IOSCO refers to the work undertaken jointly by IOSCO and the Committee on

Payment and Market Infrastructures (“CPMI”) to enhance the international coordination of

standard and policy development and implementation regarding clearing, settlement, and reporting

arrangements, including with respect to financial market infrastructures such as central

counterparties and central securities depositories.

Conformed to Federal Register version

Release,156 in the T+1 Report,157 and in several comment letters158 submitted in response to the

T+1 Proposing Release. Such impediments include, for example, challenges related to maintaining

multi-lateral netting, institutional trade processing, securities lending practices, money settlement

systems, mutual fund and ETF processing, transaction funding requirements, and corporate action

processing. Given the operational and technological challenges associated with moving to a T+0

settlement cycle, the Commission believes that a successful move to T+0 would take longer to

design and implement, and cost more than, a successful move to a T+1 settlement cycle.159

Shortening the settlement cycle to T+1 will result in substantial benefits to market

participants that will be attainable much sooner than shortening the settlement cycle to T+0. Thus,

the Commission believes shortening the settlement cycle to T+1 to be the more prudent and

practical approach to shortening the settlement cycle at this time.

However, the Commission continues to believe, as it stated in the T+1 Proposing Release,

that the transition to a T+1 settlement cycle can be a useful step in identifying potential paths to

T+0 settlement.160 As the securities industry moves forward to implement a T+1 standard

settlement cycle, this process generally should include consideration of the potential paths to

156

See T+1 Proposing Release, supra note 2, at 10467–74.

157

See T+1 Report, supra note 61, at 10–11.

158

See supra notes 59–60, 62–71, and accompanying text.

159

Because industry participants have not developed solutions to the technological,

operational, and business challenges and impediments associated with a move to a T+0 settlement

cycle, at this time the Commission cannot reasonably provide estimates regarding the length of

time that would be necessary for a successful move to T+0, or the costs associated with such a

move.

160

See T+1 Proposing Release, supra note 2, at 10465.

Conformed to Federal Register version

achieving T+0 to help ensure that investments in new technology and operations undertaken to

achieve T+1 can maximize the value of such investments over the long term. Following the

transition to T+1 in the U.S. markets, Commission staff will continue to work with industry

leaders, public interest advocates, investors and other regulators to assess the future feasibility of a

T+0 settlement standard cycle, and seek to identify ways to overcome the challenges associated

with such a move, as articulated in the T+1 Proposing Release.161

Amendments to Exchange Act Rule 15c6-1(b)

The Commission is amending paragraph (b) of Exchange Act Rule 15c6-1 to exclude

security-based swaps from the requirements under paragraph (a) of the rule. The T+1 Proposing

Release asked whether the Commission should provide exemptive relief from the requirements

under Rule 15c6-1 for transactions in security-based swaps.162 As discussed above, the

Commission received two comment letters that discussed whether Rule 15c6-1 should apply to

security-based swap transactions and both of these commenters urged the Commission to exclude

security-based swaps from the requirements under the rule.163 The Commission agrees with the

comment letter highlighting “key differences” between security-based swaps and other types of

securities, and agrees that such differences warrant excluding security-based swaps from the

requirements under paragraph (a) of Rule 15c6-1. In the Commission’s view, such characteristics

of security-based swaps make transactions in security-based swaps inconsistent with the purpose,

intent, and structure of Rule 15c6-1, as discussed further below.

161

Id. at 10467–75.

162

See id. at 10451.

163

See supra note 78 and accompanying text.

Conformed to Federal Register version

First, consistent with the Commission’s understanding of security-based swap transactions,

the commenter explains that for security-based swaps “final net payment is paid by one party to

the other at a future point in time to which the parties have contractually agreed.”164 The

commenter also states that Rule 15c6-1 is “inapt” with respect to security-based swap transactions,

which are “generally bilateral and executory in nature,” meaning that there are numerous terms

that the parties typically agree to fulfill at later dates.165 The Commission believes that the

commenter’s description of security-based swaps is accurate.

The Commission further believes that excluding security-based swaps from the

requirements under paragraph (a) of Rule 15c6-1 would be consistent with the purpose of the rule.

The Commission first proposed Rule 15c6-1 to establish T+3 as “the standard settlement time

frame for broker-dealer trades,”166 and explained in the T+3 Proposing Release that the rule “is

designed to establish T+3 as a new ‘default’ contract term.”167 The T+3 Proposing Release further

stated that most broker-dealers do not specify all of the terms of a trade before execution, but rely

on industry custom and SRO rules for those terms, and the Commission did not intend to change

industry custom to require broker-dealers to specify contract terms.168 Unlike other securities

transactions, however, security-based swap contracts generally do include contract terms that

specify the timing of contractual obligations, and for that reason there is not a need for any rulebased “default” contract term that provides for the timing of such obligations.

164

SIFMA April Letter, supra note 16, at 11.

165

Id.

166

T+3 Proposing Release, supra note 4, at 11806–07.

167

Id. at 11809.

168

See id.

Conformed to Federal Register version

Because security-based swap contracts provide for the timing of contractual obligations,

the Commission does not anticipate that it will become necessary for Rule 15c6-1(a) to apply to

security-based swap transactions at any point in the future. As such, the Commission is amending

the text of Rule 15c6-1(b) to exclude security-based swaps from the requirements under Rule

15c6-1(a), rather than issuing a new exemptive order that would accomplish the same objective.

As discussed further in Part VII.B, the amendments to Rule 15c6-1(b) that the Commission

is adopting in this document, including both the new provision that exempts security-based swaps

from the scope of paragraph (a), as well as the technical conforming changes to Rule 15c6-1(b)

described below, will become effective upon the effective date of the rule. The Commission has

determined that these changes should become effective upon the effective date, rather than the

compliance date for Rule 15c6-1 more generally, to avoid any possible confusion as to whether

broker-dealer transactions in security-based swaps may or may not be subject to Rule 15c6-1(a)

between the effective date and the compliance date.

As explained in the T+1 Proposing Release, Rule 15c6-1(b)(1) currently provides an

exclusion for contracts involving the purchase or sale of limited partnership interests that are not

listed on an exchange or for which quotations are not disseminated through an automated quotation

system of a registered securities association.169 No commenters suggested amending the exclusion

under existing Rule 15c6-1(b)(1), and the amendments to Rule 15c6-1(b) being adopted in this

document do not include any changes to this exclusion.

In recognition of the fact that the Commission may not have identified all situations or

types of trades where the application of Rule 15c6-1(a) would be problematic, existing Rule 15c61(b)(2) provides that the Commission may exempt by order additional types of trades from Rule

169

See T+1 Proposing Release, supra note 2, at 10446.

Conformed to Federal Register version

15c6-1(a), either unconditionally or on specified terms and conditions, if the Commission

determines that such an exemption is consistent with the public interest and the protection of

investors.170 No commenters suggested any amendments to paragraph (b)(2) of Rule 15c6-1, and

the Commission is not amending this provision of the rule. Accordingly, the Commission is

making no substantive changes to the existing provision that is currently designated as paragraph

(b)(2). However, the amendments to Rule 15c6-1(b) being adopted in this document will

redesignate existing paragraph (b)(2) of the rule as paragraph (b)(3) of the rule, and a new

provision that excepts security-based swap transactions from the requirements under paragraph (a)

of Rule 15c6-1 will be designated as paragraph (b)(2) of the rule.171

The rule amendments being adopted in this document also strike the term “contracts” from

the first clause in paragraph (b) of Rule 15c6-1, and add the words “Contracts for” to the beginning

of paragraphs (b)(1) and (3) (formerly paragraph (b)(2)). These technical changes are intended to

account for the fact that the definition of a security-based swap under section 3(a)(68) of the

Exchange Act172 incorporates the term “contract” and leaving the same term in the first clause of

Rule 15c6-1(b) could create confusion as to the meaning of the new provision under paragraph

(b)(2) of the rule, which refers to security-based swaps.

Amendment to Exchange Act Rule 15c6-1(c)

The Commission is amending paragraph (c) of Exchange Act Rule 15c6-1 to shorten the

settlement cycle for firm commitment offerings for securities that are priced after 4:30 p.m. ET,

unless otherwise expressly agreed to by the parties at the time of the transaction. Specifically, the

170

See 17 CFR 240.15c6-1(b)(1).

171

See 17 CFR 240.15c6-1(b)(1)–(3).

172

See 15 U.S.C. 78c(a)(68).

Conformed to Federal Register version

amendment to paragraph (c) of Rule 15c6-1 will shorten the standard settlement cycle for these

offerings from T+4 to T+2. As amended, paragraph (c) of Rule 15c6-1 will provide that paragraph

(a) of the rule does not apply to contracts for the sale for cash of securities that are priced after

4:30 p.m. ET on the date such securities are priced and that are sold by an issuer to an underwriter

pursuant to a firm commitment underwritten offering registered under the Securities Act or sold to

an initial purchaser by a broker-dealer participating in such offering provided that a broker or

dealer shall not effect or enter into a contract for the purchase or sale of such securities that

provides for payment of funds and delivery of securities later than the second business day after

the date of the contract, unless otherwise expressly agreed to by the parties at the time of the

transaction.173

As explained in the T+1 Proposing Release, in 1995 the Commission added paragraph (c)

to Rule 15c6-1 in response to public comments stating that new issue securities could not settle on

T+3 because prospectuses could not be printed prior to the trade date (the date on which the

securities are priced).174 The T+1 Proposing Release proposed to delete paragraph (c) based on the

Commission’s belief that expanded application of the “access equals delivery” standard for

prospectus delivery supports removing paragraph (c) from Rule 15c6-1 because delays in the

process that previously made delivery of the prospectus difficult to achieve under the standard

settlement cycle have been mitigated by the “access equals delivery” standard.175 However, the

T+1 Proposing Release also acknowledged that the T+1 Report had recommended the Commission

173

See 17 CFR 240.15c6-1(c).

174

See T+1 Proposing Release, supra note 2, at 10449.

175

See id.

Conformed to Federal Register version

retain paragraph (c), but modify it to shorten the standard settlement cycle for firm commitment

offerings priced after 4:30 p.m. ET from T+4 to T+2.176 Additionally, the Commission requested

public comment on the proposed deletion of paragraph (c) and requested that, to the extent that

commenters agree with the T+1 Report, such commenters provide data or other detailed

information explaining why a T+1 settlement cycle is an inappropriate standard for all firm

commitment offerings priced after 4:30 p.m.177

After reviewing the comment letters received in response to the T+1 Proposing Release, the

Commission continues to believe that the process that made delivery of the prospectus difficult to

achieve under the standard settlement cycle has been mitigated by the “access equals delivery”

standard. However, the Commission also is persuaded by the comment letter arguing that the

Commission should retain paragraph (c) of Rule 15c6-1, but shorten the settlement cycle to T+2

for firm commitment offerings for securities that are priced after 4:30 p.m. ET, unless otherwise

expressly agreed to by the parties at the time of the transaction.178

The Commission is persuaded that a T+1 settlement cycle is not long enough to prevent

firm commitment offerings priced after 4:30 p.m. ET from failing to settle on time. In particular,

the Commission acknowledges that paragraphs (a) and (d) of Rule 15c6-1 would not allow parties

to agree to a longer settlement cycle when circumstances unforeseen at the time of the pricing of

176

See id. (citing T+1 Report, supra note 61, at 33).

177

See id. at 10450.

178

See supra Part II.B.3 (providing a detailed description of comment letters urging the

Commission to adopt a T+2 settlement cycle for firm commitment offerings for securities that are

priced after 4:30 p.m. ET, unless otherwise expressly agreed to by the parties at the time of the

transaction).

Conformed to Federal Register version

the transaction arise that prevent settlement on T+1.179 Specifically, while paragraphs (a) and (d)

allow parties to agree to a longer settlement cycle, in order for the parties to avail themselves of

that extended settlement date, they must reach that agreement at the time of the transaction and

must take affirmative steps in advance of each such transaction in order to obtain relief under

paragraph (a) or (d).

With respect to unforeseen circumstances that arise in connection with firm commitment

offerings, for example, as stated by a commenter, it is not unusual for unanticipated issues relating

to transfer agents, legend removal, local law matters (including local court approval), medallion

guarantees or non-U.S. parties to arise.180 Such unanticipated issues could lead to increased

failures to settle trades on a T+1 basis with respect to firm commitment offerings priced after 4:30

p.m. ET. For these reasons, the Commission has reconsidered its proposed deletion of paragraph

As stated above, the comment letter discussing the proposed deletion of paragraph (c)

stated that the Commission should amend paragraph (c) to establish a T+2 settlement cycle for

firm commitment offerings priced after 4:30 p.m. ET.181 The Commission agrees with the

commenter’s recommendation, and is amending paragraph (c) to establish a T+2 settlement cycle

for these offerings, rather than deleting paragraph (c) as the Commission proposed. In the T+1

179

In the T+1 Proposing Release the Commission acknowledged that the complex

documentation associated with firm commitment offerings may in some cases require more time to

complete than is available under a T+1 standard settlement cycle. See T+1 Proposing Release,

supra note 2, at 10450–51.

180

See SIFMA April Letter, supra note 16, at 10.

181

See id.

Conformed to Federal Register version

Proposing Release, the Commission considered such a T+2 standard as an alternative to deleting

paragraph (c), but proposed deleting paragraph (c) to fully harmonize the settlement of primary

offerings with the settlement cycle for secondary market trades, thereby removing all financial and

operational risks that can arise when the same security settles on two different settlement cycles.182

In proposing this approach, the Commission stated its belief that paragraph (d) would provide

sufficient flexibility to manage the need for a longer settlement cycle when it arises.183 In light of

the comments received, and as discussed above, the Commission now believes that the flexibility

provided by paragraph (d) is insufficient to ensure timely settlement for certain firm commitment

offerings under a T+1 standard settlement cycle. Accordingly, the Commission believes that the

proposed alternative—retaining paragraph (c) but shortening the standard settlement cycle under

the provision to T+2—would best achieve the Commission’s stated objective of establishing a

common standard that effectively minimizes the financial and operational risks associated with the

settlement of firm commitment offerings. As discussed in the T+1 Proposing Release, the T+1

Report indicates that, under the existing T+4 settlement cycle for firm commitment offerings, most

transactions currently settle on a T+2 basis. Consistent with the comments received, the

Commission believes that a T+2 settlement cycle for firm commitment offerings priced after 4:30

p.m. ET provides sufficient time and flexibility to complete documentation and address any other

issues that may arise in the preparation of a firm commitment offering to ensure timely settlement.

Retention of Existing Exchange Act Rule 15c6-1(d) Unchanged

Because the Commission is not deleting paragraph (c) of Rule 15c6-1, the Commission is

not adopting the proposed technical changes to paragraph (d) of the rule. The Commission did not

182

T+1 Proposing Release, supra note 2, at 10450.

183

Id. at 10492.

Conformed to Federal Register version

propose any other changes to paragraph (d) of Rule 15c6-1, and the Commission received no

comments recommending changes to this provision of the rule.

The Commission agrees with the commenter stating that paragraph (d) should be

retained184 because paragraph (d) enables underwriters and the parties to a transaction to agree, in

advance of the transaction, to a settlement cycle other than the standard settlement cycle specified

in either paragraph (a) or (c) of the rule, when necessary to manage obligations associated with the

firm commitment offerings. Market participants involved in firm commitment offerings of certain

debt and preferred securities commonly rely on paragraph (d) of Rule 15c6-1 to extend settlement

in order to allow time for the completion of the extensive documentation associated with such

offerings,185 and the Commission believes it is not always possible for such documentation to be

completed within the time frames provided by under paragraphs (a) and (c) of Rule 15c6-1.

Therefore the amendments to Rule 15c6-1 being adopted in this document do not include any

changes to paragraph (d) of the rule.

Exemptive Orders under Exchange Act Rule 15c6-1(b)

The Commission has reviewed the comments submitted in response to the T+1 Proposing

Release that relate to the Commission’s existing exemptive orders issued pursuant to Exchange

Act Rule 15c6-1(b),186 and, because no changes are needed to facilitate an orderly transition to a

T+1 settlement cycle, the existing exemptive orders will remain in effect without modification.

The Commission’s view that no changes to the orders are needed is consistent with the comments

184

See SIFMA April Letter, supra note 16, at 11.

185

See T+1 Report, supra note 61, at 33.

186

See supra notes 105 and 126.

Conformed to Federal Register version

urging that the Commission retain both the existing exemption for certain insurance products, as

well as the exemption for certain foreign securities, as described above.187

With respect to the comments recommending that the Commission expand the scope of the

existing exemptive order relating to securities that do not have facilities for transfer or delivery in

the U.S.,188 the Commission is not persuaded that expanding the scope of the order is necessary at

this time and is declining to do so for the reasons discussed below. However, the Commission will

continue to monitor how shortening the standard settlement cycle to T+1 in the U.S. affects market

participants.

Notwithstanding the comments raising concerns that the existing exemption for certain

foreign securities does not exempt ADRs from the T+1 standard settlement cycle,189 the

Commission believes that ADRs should continue to be subject to Rule 15c6-1(a). In response to

one commenter’s statements relating to the timely sale of ADR transactions using newly created

ADRs,190 the Commission understands that a large percentage of ADR trading activity involves

purchases and sales of existing ADRs in the U.S. markets. Thus, the commenter’s concerns would

seem to relate to only a small percentage of ADR trading activity.191

187

See supra Part II.B.5.

188

See SIFMA April Letter, supra note 16, at 8–9; ICI Letter, supra note 16, at 4.

189

See SIFMA April Letter, supra note 16, at 8; ICI Letter, supra note 16, at 4.

190

See SIFMA April Letter, supra note 16, at 8.

191

See infra notes 606–616 (discussing the anticipated economic effect on transactions in

ADRs).

Conformed to Federal Register version

The commenter stated that “[t]his type of trade” will not be possible if the underlying

foreign shares settle on T+2 and the related ADR is required to settle on T+1, and the result is

likely to be wider bid-ask spreads for the ADR because market makers must take into account the

additional cost of borrowing securities and other financing costs to avoid settlement failures.192

While bid-ask spreads could widen and costs could increase for this narrow category of ADR

transactions, the Commission believes that ADRs should be subject to the requirements under Rule

15c6-1(a). Exempting ADRs from the requirements under Rule 15c6-1(a) would create another

misalignment between the securities settlement cycle for ADRs and the standard settlement cycle

for other types of securities, which the Commission believes would unduly dilute the benefits of a

standard settlement cycle. As a general matter, a standard settlement cycle facilitates operational

efficiency, reduces operational costs and transaction costs, and reduces risk for market participants.

In this particular case, the Commission believes that exempting ADRs from Rule 15c6-1(a)

would diminish the benefits associated with shortening the standard settlement cycle to T+1. As

previously discussed in detail, such benefits include risk reduction (e.g., credit, market, liquidity

and systemic risk), as well as increased capital efficiency.

The Commission also does not agree with the commenter that it will be impossible for

market makers and other market participants to purchase foreign shares and sell related ADRs in

the U.S. on the same trading day, and thus timely settle the sale of the ADRs using the newly

created ADRs.193 Rather, the Commission believes that market participants can borrow the

underlying securities necessary to settle the newly created ADR on T+1 if the securities are

192

See id.; see also ICI Letter, supra note 16, at 4.

193

See SIFMA April Letter, supra note 16, at 8.

Conformed to Federal Register version

available. While the commenter also raises the concern that in some cases it will not be possible to

borrow the securities to make delivery,194 the possibility that certain securities may be costly or

difficult to borrow at certain times is not limited to ADRs. As previously discussed, establishing a

standard settlement cycle facilitates operational efficiency, reduces operational costs and

transaction costs, and reduces risk for market participants. Providing exemptions for securities that

can be costly or difficult to borrow—when the cost or difficulty to borrow will vary over time in

response to movements in the price of the security, a dynamic unrelated to the length of the

settlement cycle—would erode these benefits.

The Commission also has reviewed the comments urging the Commission to “exempt from

T+1 settlement” U.S.-listed ETFs with baskets that contain foreign securities and ADRs,195 and has

determined that such an exemption is not warranted at this time for reasons that are similar to those

discussed above in response to the comments raising concerns regarding the impact the move to

T+1 will have on market participants trading ADRs. As a general matter, the Commission believes

that allowing ETFs to settle on a settlement cycle that is longer than T+1 would diminish the

benefits associated with a standard settlement cycle and shortening the standard settlement cycle to

T+1.

The Commission recognizes that settling trades in U.S.-listed ETFs with baskets that

contain foreign securities may become more costly for certain APs in a T+1 environment, as result

of the prospective misalignment between the settlement cycle for such trades and the settlement

cycle for the underlying foreign securities. For example, the Commission acknowledges that

during the ETF share creation process, APs may need to post collateral or establish credit lines to

194

See id.

195

See id.; ICI Letter, supra note 16, at 4.

Conformed to Federal Register version

satisfy foreign market requirements. However, as previously discussed, the Commission believes

that moving to a T+1 settlement cycle will reduce other costs (e.g., margin charges), increase

capital efficiency, and reduce risk in the U.S. clearance and settlement system.196

The Commission also disagrees with the comment stating that the prospective

misalignment in settlement cycles may increase certain risks, such as failed trades, accrual

differences, net asset value miscalculations, and investment guideline breaches. Market

participants will have many months to implement any operational requirements they identify

associated with the move to a T+1 settlement cycle, including the operational requirements

associated with the settlement of U.S.-listed ETFs with baskets that include foreign securities

and/or ADRs. The industry has already identified many such requirements,197 and the Commission

believes that market participants will have sufficient time to complete the operational changes

necessary to minimize these risks. Moreover, as explained above,198 the Commission believes that

shortening the settlement cycle will reduce certain risks for market participants overall (e.g., credit,

market and liquidity risk), including these risks faced by APs.

The Commission also does not believe that it is necessary at this time to amend the text of

paragraph (b) of Rule 15c6-1 to codify the existing exemptive order for securities that do not have

facilities for transfer or delivery in the U.S., or the existing exemptive order for certain insurance

products. As noted above, one commenter recommended that the existing exemptions “either be

196

See supra note 139 and accompanying text.

197

See T+1 Playbook, supra note 134, at 33 (providing recommendations to improve timing in

nightly batch cycles, make use of lines of credit to address the potential need for more collateral,

and establishing connections for real-time messaging with NSCC).

198

See supra note 139 and accompanying text.

Conformed to Federal Register version

codified in Rule 15c6-1(b), or the Commission issue a new order to replace the orders issued in

1995 to facilitate access to the terms of the exemptions and to facilitate compliance with their

terms.”199

Since these orders were first issued in 1995, both orders have provided adequate regulatory

relief to market participants who engage in transactions that the orders were intended to cover.

Codifying the exemptions is not necessary to facilitate the transition to a T+1 settlement cycle, and

the Commission is aware of no evidence that market participants lack knowledge of the terms of

the exemptive orders or have been unable to comply with the orders because they have not been

codified in Rule 15c6-1.

III.

Exchange Act Rule 15c6-2 – Same-Day Affirmation

Proposed Rule 15c6-2

The Commission proposed Rule 15c6-2 to require that, where parties have agreed to

engage in an allocation, confirmation, or affirmation process, a broker or dealer would be

prohibited from effecting or entering into a contract for the purchase or sale of a security (other

than an exempted security, a government security, a municipal security, commercial paper,

bankers’ acceptances, or commercial bills) on behalf of a customer unless such broker or dealer

has entered into a written agreement with the customer that requires the allocation, confirmation,

affirmation, or any combination thereof, be completed as soon as technologically practicable and

no later than the end of the day on trade date in such form as may be necessary to achieve

settlement in compliance with Rule 15c6-1(a).200

199

See supra note 128 and accompanying text.

200

See T+1 Proposing Release, supra note 2, at 10453.

Conformed to Federal Register version

In proposing Rule 15c6-2, the Commission did not define the terms “allocation,”

“confirmation,” or “affirmation,” but explained that trade allocation refers to the process by which

an institutional investor (often an investment adviser) allocates a large trade among various client

accounts or determines how to apportion securities trades ordered contemporaneously on behalf of

multiple funds or non-fund clients.201 The T+1 Proposing Release also explained that the terms

“confirmation” and “affirmation” in proposed Rule 15c6-2 refer to the transmission of messages

among broker-dealers, institutional investors, and custodian banks to confirm the terms of a trade

executed for an institutional investor, a process necessary to ensure the accuracy of the trade being

settled. The Commission stated its belief that these terms are widely used and generally

understood by market participants who engage in institutional trade processing.202

In addition, in proposing Rule 15c6-2, the Commission used the term “confirmation” to

refer to the operational message that includes trade details provided by the broker-dealer to the

customer to verify trade information so that a trade can be prepared for settlement on the timeline

established in Rule 15c6-1(a), in contrast to the confirmations required under Rule 10b-10, which

concern a series of disclosures that broker-dealers are required to provide in writing to customers

at or before completion of a transaction.203 The Commission explained that the term

“confirmation,” as used in proposed Rule 15c6-2, should be understood to refer to the institutional

trade processing message or verification and not the disclosure required under Rule 10b-10.204

201

Id.

202

See id.

203

See id. at 10453–54.

204

See id. at 10454.

Conformed to Federal Register version

The Commission also explained that the term “customer,” as used in proposed Rule 15c6-2,

includes any person or agent of such person who opens a brokerage account at a broker-dealer to

effect an institutional trade or purchases or sells a security for which the broker-dealer receives or

will receive compensation.205 The Commission stated that the term is intended to cover both the

institutional investor and any and all agents acting on its behalf.206

Comments

Existing Commercial Incentives for Timely Trade Allocations,

Confirmations, and Affirmations

Two commenters stated that the written agreements required under proposed Rule 15c6-2

are unnecessary to improve same-day affirmation rates because commercial incentives to achieve

timely trade allocations, confirmations, and affirmations already exist.207 One commenter

identified, for example, the following incentives for firms to achieve on-time settlement: increased

cost of settling a trade without netting through the CCP; increased costs associated with the

processing of trades that are not affirmed; costs associated with buy-ins for trades that are not

settled on a timely basis; and the potential for customer dissatisfaction related to the failure to

timely settle or the increased costs associated with such failure.208 The second commenter stated

205

See id.

206

See id.

207

See Fidelity Letter, supra note 16, at 3–4 (stating that proposed Rule 15c6-2 is not

necessary because “market incentives already exist to timely allocate, confirm, and affirm trades”);

letter from Tom Price, Managing Director, SIFMA (Aug. 26, 2022), at 2 (“SIFMA August 26th

Letter”) (stating that written agreements, as proposed by Rule 15c6-2, are unnecessary because

“there are many commercial incentives in place for industry participants to meet market standard

settlement timelines”).

208

See SIFMA August 26th Letter, supra note 207, at 2.

Conformed to Federal Register version

that it is in an institutional customer’s best interest to timely allocate, confirm, and affirm its

trades, as doing so is the first step and a pre-condition to settling a trade.209 This commenter also

stated more generally that financial disincentives for institutional customers that do not meet a

same-day affirmation timeline already exist.210

Linking Settlement Instructions to Affirmation

In the T+1 Proposing Release, the Commission stated that broker-dealers are best

positioned to ensure the timely settlement of institutional trades and, as such, should be able to

ensure via their customer agreements that institutional customers or their agents also adjust their

operations to facilitate same-day affirmation.211 In response to this statement, one commenter

stated that settlement requires client instruction through a client’s agents, who are typically

custodians, against a broker-dealer’s trades.212 The commenter also stated that, because custodians

often act as an agent for institutional clients, custodians are highly dependent on the

implementation of efficient and timely operating models and processes across market participants

at the trading level, including institutional clients and broker-dealers, before they can effect

settlement on their client’s behalf.213 In this regard, the commenter requested that the Commission

consider requiring through Rule 15c6-2 the linking of settlement instructions to the affirmation.214

209

See Fidelity Letter, supra note 16, at 3.

210

See id.

211

See T+1 Proposing Release, supra note 2, at 10453.

212

See AGC April Letter, supra note 16, at 3.

213

See id.

214

See id. at 2.

Conformed to Federal Register version

Definitions of Certain Terms

In the T+1 Proposing Release, the Commission requested comment as to whether the terms

“allocation,” “confirmation,” “affirmation,” “end of the day on trade date,” and “customer” should

be defined for purposes of Rule 15c6-2.215 In response, one commenter agreed with the

Commission’s view, as articulated in the T+1 Proposing Release, and expressed support for not

defining these terms in the rule.216 This commenter stated that, because operational and

technological processes and practices continually evolve across market participants who engage in

institutional trade processing, the above terms are best grounded in the prevailing market practices

and uses understood by these market participants.217 A second commenter, in contrast, stated that

it would generally be helpful for the Commission to provide definitions of terms within the context

of the proposed rule, even where such terms are commonly used in the industry.218 The

commenter recommended that the Commission define each of the above terms for purposes of

Rule 15c6-2 and suggested that the Commission also define the term “trade” because there are

multiple uses of this term by the industry.219 The commenter further stated that the term

215

See T+1 Proposing Release, supra note 2, at 10455.

216

See letter from Matthew Stauffer, Managing Director and Head of DTCC Institutional

Trade Processing, DTCC ITP LLC (Apr. 11, 2022), at 3 (“DTCC ITP April Letter”).

217

See id. (explaining that by not prescribing definitions for the key terms used in proposed

Rule 15c6-2, the Commission would allow such terms to continue to evolve).

218

See letter from Jim Kaye, Americas Regional Director, FIX Trading Community (Apr. 11,

2022), at 2–3 (“FIX Trading Letter”).

See id. The commenter provided suggested definitions for the terms “allocation,”

“confirmation,” and “affirmation” and recommended that the term “end of the day on trade date”

be defined as a specific time of day together with its time zone. Id. at 2.

219

Conformed to Federal Register version

“affirmation” is open to some interpretation and suggested that the Commission define this term in

particular.220

Use of Third Parties to Achieve Same-Day Affirmation

One commenter requested that the Commission clarify whether, under proposed Rule 15c62, an investment adviser that has entered into an agreement with a broker-dealer pursuant to the

proposed rule may rely on a third party—such as a third party order management system, subadviser, or custodian—to allocate or affirm trades.221 This commenter, in a later letter, stated that

“upon further analysis, we understand that requiring advisers to enter into specific contractual

arrangements would create significant challenges for advisers,” and recommended that the

Commission replace the proposed requirement of a written agreement with a requirement that

investment advisers adopt and implement policies and procedures reasonably designed to ensure

that allocations, confirmations, and affirmations are completed on a timeline that allows settlement

on T+1.222 As the commenter explained, this approach would “relieve investment advisers, when

they are parties to an allocation, confirmation, and affirmation process, from the burden of

negotiating and having to regularly update written agreements,” and “create incentives for

investment advisers to work with broker-dealers and other third parties to complete the process in a

220

See id. at 2.

221

See IAA April Letter, supra note 16, at 3–4.

222

See letter from Gail C. Bernstein, General Counsel, and William A. Nelson, Associate

General Counsel, Investment Adviser Association (Oct. 19, 2022), at 1–2 (“IAA October Letter”).

Conformed to Federal Register version

timely manner while allowing them greater flexibility to comply in a manner best suited to their

existing infrastructure, clients, and resource levels.”223

Challenges Associated with Requiring Written Agreements in Support of

Increasing Same-Day Affirmations

Although commenters generally supported the Commission’s overall goal of increasing

same-day affirmations, several commenters expressed a number of concerns with the written

agreement requirement in proposed Rule 15c6-2.224 First, commenters stated that in many

scenarios written agreements do not currently exist between the parties to an institutional

transaction and would be highly burdensome to establish specifically for the purpose of facilitating

same-day affirmation. For example, two commenters explained that agreements do not exist

because the parties engage in their transactions on a receive-versus-payment/deliver-versuspayment (“RVP/DVP”) basis without an underlying agreement.225 In an RVP/DVP transaction,

securities are only delivered by the seller when payment has been made by the buyer.

Some commenters explained that where written agreements do not already exist, the parties

would need to draft new agreements solely for the purpose of compliance with the rule.226 In this

regard, commenters stated that, as proposed, Rule 15c6-2 would result in burdensome, time

consuming, and costly contract negotiations, as broker-dealers would have to enter into a new or

223

Id.

224

See ASA Letter, supra note 16, at 2; Fidelity Letter, supra note 16, at 3–4; IAA October

Letter, supra note 222, at 1–3; ICI Letter, supra note 16, at 5–7; ISITC Letter, supra note 29, at 2;

MarketAxess Letter, supra note 29, at 2–3; SIFMA April Letter, supra note 16, at 5–6; State Street

Letter, supra note 16, at 4; Virtu Financial Letter, supra note 16, at 3.

225

See Fidelity Letter, supra note 16, at 4; SIFMA April Letter, supra note 16, at 5.

226

See ISITC Letter, supra note 29, at 2; Fidelity Letter, supra note 16, at 4.

Conformed to Federal Register version

amended written agreement with each of their institutional customers.227 Moreover, another

commenter stated that certain clients may not authorize their investment advisers to enter into the

type of written agreement required under proposed Rule 15c6-2, while other clients may insist on

negotiating bespoke guideline requirements, such as arbitration or governing law, into their written

agreements.228 Multiple commenters further expressed the view that the proposed written

agreement requirement would create unnecessary practical burdens and costs.229 Several of these

commenters stated that it would be impracticable for institutional customers to enter into such

agreements because they often rely on other parties to complete certain elements of the allocation,

confirmation, and affirmation process.230 One of these commenters stated more generally that a

requirement for broker-dealers to enter into a written agreement with each of their institutional

customers is not practically feasible.231 One commenter also observed that it is unclear under

proposed Rule 15c6-2 whether broker-dealers should be entering into the written agreements with

the investment advisers or with their customers.232

227

See ICI Letter, supra note 16, at 5–6; MarketAxess Letter, supra note 29, at 2–3; SIFMA

April Letter, supra note 16, at 5–6.

228

See SIFMA April Letter, supra note 16, at 5.

229

See ASA Letter, supra note 16, at 2; ICI Letter, supra note 16, at 5; SIFMA April Letter,

supra note 16, at 5; Virtu Financial Letter, supra note 16, at 3.

230

See ICI Letter, supra note 16, at 5; SIFMA April Letter, supra note 16, at 5; Virtu Financial

Letter, supra note 16, at 3.

231

See ASA Letter, supra note 16, at 2.

232

See SIFMA April Letter, supra note 16, at 5.

Conformed to Federal Register version

Multiple commenters expressed a separate concern that proposed Rule 15c6-2 would

expose a non-breaching broker-dealer to potential liability if its customer, or customer’s agent,

breaches the written agreement, even if through no fault of the broker-dealer.233 In raising this

concern, some commenters stated that the proposed rule does not specify what should happen if

the broker-dealer’s customer or its agent breaches the written agreement, which may put brokerdealers in the difficult position of trying to regulate the conduct of their customers through

commercial contracts.234 Another commenter also observed that the proposed rule would place the

compliance burden on broker-dealers, even though the customer—and not the broker-dealer—has

the necessary information to complete the allocation, confirmation, and affirmation process.235

However, under proposed Rule 15c6-2, a broker-dealer is only responsible for its own actions and

not for the actions of its customers or any other relevant parties to an institutional transaction, as

discussed further in Part III.C.

Further, several commenters expressed the view that a written agreement requirement, as

proposed in Rule 15c6-2, would not be an effective approach for achieving the Commission’s

233

See Fidelity Letter, supra note 16, at 4; MarketAxess Letter, supra note 29, at 3; SIFMA

April Letter, supra note 16, at 6; Virtu Financial Letter, supra note 16, at 3.

234

See Fidelity Letter, supra note 16, at 4 (questioning whether, under proposed Rule 15c6-2,

a broker-dealer would be subject to SEC enforcement if it failed to enforce private contractual

provisions with its customers regarding same-day affirmation); MarketAxess Letter, supra note 29,

at 3 (stating that broker-dealers are not regulators and, as such, cannot force their customers to

upgrade their technology or processes to achieve same-day affirmations).

235

See SIFMA April Letter, supra note 16, at 6.

Conformed to Federal Register version

overall goal of increasing same-day affirmations.236 One commenter observed, for example, that a

written agreement requirement is unnecessary because the industry recognizes the importance of

same-day affirmations and is actively working toward achieving same-day allocations,

confirmations, and affirmations.237 In this regard, some commenters recommended that the

Commission revise proposed Rule 15c6-2 to replace the written agreement requirement with a

requirement that broker-dealers establish written policies and procedures reasonably designed to

achieve same-day affirmation.238 Some of these commenters further stated that such a principlesbased approach would relieve the parties to an institutional transaction from the burden of

negotiating a written agreement; incentivize broker-dealers to work with their customers to

complete the allocation, confirmation, and affirmation process in a timely manner; and afford

broker-dealers more flexibility to comply with the rule in a manner best suited to their specific

business models, customer bases, and products.239

Finally, two commenters indicated that the proposed requirement for written agreements in

Rule 15c6-2 may encourage parties to cancel their transactions before the end of trade date when

236

See ASA Letter, supra note 16, at 2; ICI Letter, supra note 16, at 5; ISITC Letter, supra

note 29, at 2; MarketAxess Letter, supra note 29, at 3; SIFMA April Letter, supra note 16, at 5;

State Street Letter, supra note 16, at 4.

237

See ICI Letter, supra note 16, at 7.

238

See ASA Letter, supra note 16, at 2; ICI Letter, supra note 16, at 7; MarketAxess Letter,

supra note 29, at 3; SIFMA April Letter, supra note 16, at 6; State Street Letter, supra note 16, at

4; Virtu Financial Letter, supra note 16, at 3; see also IAA October Letter, supra note 222, at 1–2;

SIFMA August 26th Letter, supra note 207, at 2.

239

See ICI Letter, supra note 16, at 7; MarketAxess Letter, supra note 29, at 3; SIFMA April

Letter, supra note 16, at 6; see also IAA October Letter, supra note 222, at 2–3; SIFMA August

26th Letter, supra note 207, at 2.

Conformed to Federal Register version

an allocation, confirmation, or affirmation cannot be completed to avoid violating the proposed

rule.240

End-of-Day Trading, Transactions Across Multiple Time Zones, and

Variations in Local Holidays as Obstacles to Same-Day Affirmation

Several commenters raised concerns about certain obstacles—such as end-of-day trading,

transactions across multiple time zones, and variations in holiday schedules—that could interfere

with achieving same-day affirmation under proposed Rule 15c6-2.241 One commenter stated that,

given time zone differences, a non-U.S. investment manager might not be able to fill and execute

its U.S. securities transactions before its local close of business and, therefore, would not be able to

achieve same-day affirmation.242 Another commenter indicated that same-day affirmation may be

difficult to achieve for those in the same or similar time zones for trades occurring at or near the

U.S. market close, and that same-day affirmation may not be feasible for those located in time

zones several hours ahead of the U.S., as new cut-off times would occur late into their

overnight.243 Some commenters stated that investment advisers and their clients often rely on

other parties to complete certain aspects of the allocation, confirmation, and affirmation process

and, in doing so, are subject to the time zones and local holiday schedules in the countries where

240

See ICI Letter, supra note 16, at 7; Virtu Financial Letter, supra note 16, at 3.

241

See AIMA Letter, supra note 29, at 2, 6–7; ISITC Letter, supra note 29, at 6; SIFMA April

Letter, supra note 16, at 5; Virtu Financial Letter, supra note 16, at 3.

242

See ISITC Letter, supra note 29, at 6.

243

See AIMA Letter, supra note 29, at 2, 6–7.

Conformed to Federal Register version

these other parties operate, which could prevent achieving same-day affirmation.244 The same

commenters requested that the Commission modify proposed Rule 15c6-2 to offer broker-dealers

some flexibility in situations where same-day affirmation cannot be achieved because of

circumstances that are beyond their control.245 In this regard, some commenters recommended that

the Commission replace the written agreement requirement in proposed Rule 15c6-2 with a

requirement that broker-dealers adopt written policies and procedures to facilitate same-day

affirmation.246

Alternative Rule Recommended in SIFMA August Letter

The Commission received an additional comment letter from SIFMA addressing

alternatives to proposed Rule 15c6-2.247 SIFMA recommended that the Commission revise

proposed Rule 15c6-2 to replace the written agreement requirement with a requirement for policies

and procedures to support faster processing, as it would allow individual firms to design policies

and procedures tailored to their business models, products, and unique customer bases while

advancing the Commission’s interest in same-day affirmation.248 The Commission generally

agrees that requiring broker-dealers to establish, maintain, and enforce policies and procedures for

244

See ICI Letter, supra note 16, at 5–6; SIFMA April Letter, supra note 16, at 5; Virtu

Financial Letter, supra note 16, at 3.

245

See ICI Letter, supra note 16, at 7; SIFMA April Letter, supra note 16, at 5; Virtu Financial

Letter, supra note 16, at 3.

246

See ICI Letter, supra note 16, at 7; SIFMA April Letter, supra note 16, at 5; Virtu Financial

Letter, supra note 16, at 3.

247

See SIFMA August 26th Letter, supra note 207, at 2–3.

248

See id. at 2. In Part III.B.5 above, the Commission has previously discussed why it

believes it appropriate to retain the written agreement requirement in the rule, while also adding an

option to establish, maintain, and enforce written policies and procedures.

Conformed to Federal Register version

achieving same-day affirmation is an effective way to improve affirmation rates because it

promotes an orderly settlement process, thereby helping to ensure timely settlement in a shortened

settlement cycle. The Commission also believes that establishing, maintaining, and enforcing

policies and procedures as an alternative approach to compliance aside from entering into written

agreements enables broker-dealers to avoid the substantial burdens and challenges that may be

associated with negotiating written agreements in some cases. Nonetheless, as previously

discussed in Part III.B.5 above, the Commission also believes that it is appropriate to retain the

requirement for written agreements as one of two options for broker-dealers to achieve compliance

with Rule 15c6-2.

SIFMA’s recommendation included a number of elements. First, SIFMA requested that

Rule 15c6-2 be revised to require broker-dealers to establish, document, and uphold policies and

procedures reasonably designed to maintain timely settlement rates.249 Second, SIFMA

recommended that such policies and procedures: (i) address the timing of allocations,

confirmations, and affirmations to ensure timely settlement; (ii) include a communication plan

with market participants; (iii) provide a description of a broker-dealer’s ability to monitor

compliance; (iv) include the development of controls and supervisory procedures; and (v) include

the development of metrics to measure compliance.250 The Commission generally agrees with

SIFMA’s approach and, as discussed in Part III.C below, is revising final Rule 15c6-2 to allow

broker-dealers to achieve compliance with the rule either by (1) entering into written agreements

or (2) establishing, maintaining, and enforcing reasonably designed policies and procedures.

Below, the Commission discusses each of SIFMA’s recommendations in turn.

249

See id.

250

See id. at 2–3.

Conformed to Federal Register version

First, SIFMA requested that Rule 15c6-2 be revised to require broker-dealers to establish,

document, and uphold policies and procedures reasonably designed to maintain timely settlement

rates.251 While the Commission agrees that a policies and procedures approach can also advance

the Commission’s same-day affirmation objective, the Commission believes that timely settlement

is a separate, if related, objective from same-day affirmation. Commission rules have long

established the standard for timely settlement, as reflected by the requirements for the standard

settlement cycle set forth in Rule 15c6-1. In contrast, Rule 15c6-2, as proposed, seeks to advance

the objective of same-day affirmation. As discussed further in Part III.C, the Commission believes

that improving affirmation rates on trade date is an objective separate and apart from, if

nonetheless related to, shortening the settlement cycle because it promotes an orderly settlement

process regardless of the length of the settlement cycle. In the T+1 Proposing Release, the

Commission stated that, while proposed Rule 15c6-2 does not require settlement of the transaction

on trade date, the requirement for same-day affirmation supports orderly settlement by reducing

the likelihood of exceptions or other processing errors that can lead to settlement fails.252 The

Commission recognizes that Rule 15c6-1 already addresses the concept of timely settlement by

establishing a standard settlement cycle. As a result, the Commission believes that, while

proposed Rule 15c6-2 should be revised to incorporate a policies and procedures approach, the

specific objective of same-day affirmation, and not the more general objective of timely

settlement, remains the objective that such policies and procedures should be reasonably designed

to achieve.

251

Id. at 2.

252

See T+1 Proposing Release, supra note 2, at 10454–55.

Conformed to Federal Register version

Second, SIFMA suggested that policies and procedures be designed to address the timing

of allocations, confirmations, and affirmations to ensure timely settlement.253 The Commission

agrees that addressing the timing of allocations, confirmation, and affirmations on trade date can

help advance the objective of same-day affirmation, and, as discussed further in Part III.C below,

the Commission is including in the final rule a requirement for policies and procedures to include

target time frames on trade date for achieving allocations, confirmations, and affirmations. 254

Third, SIFMA suggested that policies and procedures be designed to include a

communication plan with market participants.255 The Commission agrees with this suggestion,

and, as discussed further in Part III.C below, the Commission is including in the final rule a

requirement for reasonably designed policies and procedures that include the procedures the

broker-dealer will follow to ensure the prompt communication of trade information, investigate

any discrepancies in trade information, and adjust trade information to help ensure that the

allocation, confirmation, and affirmation process can be completed by the target time frames on

trade date.256

Finally, SIFMA suggested that the policies and procedures be designed to provide a

description of a broker-dealer’s ability to monitor compliance, include the development of controls

and supervisory procedures, and include the development of metrics to measure compliance.257

The Commission also agrees that these elements can ensure that policies and procedures are

253

See SIFMA August 26th Letter, supra note 207, at 2.

254

See Rule 15c6-2(b)(2).

255

See SIFMA August 26th Letter, supra note 207, at 2.

256

See Rule 15c6-2(b)(3).

257

See id. at 2–3.

Conformed to Federal Register version

effective at helping to ensure that allocations, confirmations, and affirmations can be completed on

trade date. Accordingly, and as discussed further in Part III.C below, the Commission is including

in the final rule similar requirements as those described by SIFMA for reasonably designed

policies and procedures that identify and describe any technology systems, operations, and

processes used to coordinate with relevant parties to ensure completion of the allocation,

confirmation, or affirmation process;258 describe how the broker-dealer plans to identify and

address delays;259 and measure, monitor, and document the rates of allocations, confirmations, and

affirmations completed as soon as technologically practicable and no later than the end of trade

date.260

Final Rule and Discussion

After considering the above comments, the Commission continues to believe that

implementing a T+1 standard settlement cycle will require significant improvements in the current

rates of same-day affirmations to help ensure timely settlement in a T+1 environment.261 Although

the Commission agrees that the incentives identified by commenters in Part III.B.1 exist and help

ensure timely settlement, the Commission believes that these incentives alone are insufficient to

significantly improve same-day affirmation rates, as required to facilitate shortening the standard

258

See Rule 15c6-2(b)(1).

259

See Rule 15c6-2(b)(4).

260

See Rule 15c6-2(b)(5).

261

See T+1 Proposing Release, supra note 2, at 10453.

Conformed to Federal Register version

settlement cycle to T+1.262 While data cited in the T+1 Proposing Release indicates that

affirmation rates have improved over time, the improvements have been only modest.263

Currently, despite existing commercial incentives and efforts to establish “same-day affirmation”

as an industry best practice, only about 68% of trades achieve affirmation on trade date.264

Because the above incentives and efforts, on their own, have not sufficiently improved the current

rate of same-day affirmations, the Commission believes that additional regulatory steps—including

establishing a Commission requirement designed to advance the same-day affirmation objective—

are needed. In this way, a Commission rule effectively targeted to the same-day affirmation

objective can increase the rate of same-day affirmation for several reasons.265

First, in the absence of such a rule, the existing incentives identified by commenters tend

only to impose substantial costs on the parties if a transaction fails to settle on time (i.e., pursuant

to the standard settlement cycle set forth in Rule 15c6-1(a)). However, failing to affirm by the end

of trade date increases the likelihood that errors or exceptions will not be resolved in time for

settlement. The sooner the parties have affirmed the trade information for their transaction, the

262

See T+1 Report, supra note 61, at 13 (highlighting the need for achieving affirmation on

trade date and encouraging that affirmations be completed by 9:00 p.m. ET on trade date to

facilitate shortening the standard settlement cycle to T+1).

263

T+1 Proposing Release, supra note 2, at 10453 n.156 (citing DTCC, Proposal to Launch a

New Cost-Benefit Analysis on Shortening the Settlement Cycle (Dec. 2011), available at

https://www.dtcc.com/en/news/2011/december/01/proposal-to-launch-a-new-costbenefit-analysison-shortening-the-settlementcycle.aspx).

264

See Sean McEntee, Executive Director, ITP Product Management, DTCC, Remarks at the

DTCC ITP Forum – Americas (June 17, 2021) (“DTCC ITP Forum Remarks”), available at

https://www.dtcc.com/events/archives.

265

See infra notes 578–581 and accompanying text (discussing the anticipated economic

benefits of Rule 15c6-2 for the rate of same-day affirmations).

Conformed to Federal Register version

lower the likelihood of a settlement fail because the parties will have more time to identify and

resolve any potential errors. Second, many institutional transactions are not eligible for netting

through the CCP because the relevant securities are held by a custodian bank that is not a CCP

participant, and so market participants that use such a custodian do not have the option for—or the

accompanying incentive to complete allocations, confirmations, and affirmations by the

submission times that would facilitate—netting at the CCP.266 While industry planning for T+1

does contemplate creating new incentives to specifically induce same-day affirmations by certain

cutoff times,267 even when the transaction will not be submitted to the CCP for netting, the

associated costs for failing to meet such cutoff times are likely to be minor in comparison to the

costs associated with a failure to settle the transaction.268 As a result, market participants may not

take steps to realize the benefits that accrue from achieving allocations, confirmations, and

NSCC and DTCC ITP jointly offer an optional service called “ID Net” for transactions

affirmed by DTCC ITP. The service enables broker-dealers who are members of both NSCC and

DTC to aggregate and net for delivery purposes their institutional transactions, affirmed via DTCC

ITP, with their transactions pending for settlement in NSCC’s Continuous Net Settlement (“CNS”)

system. See DTCC, ID Net, https://www.dtcc.com/settlement-and-asset-services/settlement/id-net.

Nevertheless, such affirmed transactions are not guaranteed by NSSC and NSCC does not provide

any margin offset to the broker-dealers’ clearing fund requirements. See Exchange Act Release

No. 93070 (Sept. 20, 2021), 86 FR 53125 (Sept. 24, 2021) (SR-NSCC-2021-011) (approving

NSCC rule change to remove ID Net transactions from required fund deposit calculations).

266

267

See T+1 Report, supra note 61, at 13–14 (for a T+1 settlement cycle, encouraging

allocations be complete by 7:00 p.m. ET on trade date and recommending a new affirmation cutoff

time of 9:00 p.m. ET on trade date).

268

Specifically, failing to submit allocation, confirmation, and affirmation data by the cutoff

time will likely require a participant to submit the transaction manually to DTC, raising the cost of

the transaction. See infra note 269 and accompanying text (discussing the different fees that DTC

applies depending on the timing or method of submission for settlement). If, a market participant

fails to settle the transaction, however, it may be subject to buy-in obligations, whereby the market

participant may need to internalize not just the cost of completing the transaction manually but also

the cost of replacing the trade to the extent that the market price of the transaction has moved

against the market participant since trade execution.

Conformed to Federal Register version

affirmations on trade date, even when they are subjected to costs that arise from failing to achieve

timely settlement. Third, the costs associated with failing to affirm a transaction, or with failing to

achieve a buy-in, can be shifted among the parties settling the transaction, reducing the likelihood

that these incentives will induce the parties to identify potential improvements to their processes

over time because they do not internalize the full costs of failing to complete the allocation,

confirmation, and affirmation process on trade date. In addition, because of the costs associated

with improving processes and implementing new technologies, these incentives may only induce

change when a broker-dealer is engaged in a high volume of transactions for which errors are

recurring and is also internalizing the costs associated with correcting those errors. Otherwise, a

broker-dealer and the relevant parties may deploy “just in time” solutions, where the allocation,

confirmation, and af

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.