# Conformed to Federal Register version

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URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3Afd04301785a54f1c

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

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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.

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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.

1

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).
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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:
I.

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

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

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

B.

Comments ......................................................................................................................... 11
1.

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

2.

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

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3.

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

4.

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

5.

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

C.

Final Rule and Discussion ................................................................................................ 36
1.

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

2.

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

3.

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

4.

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

5.

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

6.

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

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

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

B.

Comments ......................................................................................................................... 62
1. Existing Commercial Incentives for Timely Trade Allocations, Confirmations, and
Affirmations ............................................................................................................................. 62
2.

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

3.

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

4.

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
7.
C.

Alternative Rule Recommended in SIFMA August Letter.............................................. 71
Final Rule and Discussion ................................................................................................ 75

1.

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

2.

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

3.

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

4.

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

5.

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

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

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

B.

Comments ....................................................................................................................... 103
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C.
V.

Final Rule and Discussion .............................................................................................. 104
Exchange Act Rule 17Ad-27 - Requirement for CMSPs to Facilitate Straight-Through

Processing .................................................................................................................................. 109
A.

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

B.

Comment Letters from DTCC ITP ................................................................................. 112
1. Amend Policies and Procedures Requirement to Add “Reasonably Designed” To the
Current Text ........................................................................................................................... 115
2.

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

3.

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

4.

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

C.

Final Rule and Discussion .............................................................................................. 125
1.

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

2.

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

3.

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

4.

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
A.

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

B.

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

C.

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

D.

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

E.

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

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

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

B.

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

C.

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

D.

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

VIII.

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

A.

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

B.

Baseline ........................................................................................................................... 192
1.

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

2.

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

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3.

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

4.

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

C.

Analysis of Benefits, Costs, and Impact on Efficiency, Competition, and Capital Formation
209
1.

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

2.

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

3.

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

4.

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

5.

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

D.

Consideration of Reasonable Alternatives ...................................................................... 264
1.

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

2.

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
5.

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

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

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

B.

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

C.

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

X.

1.

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

2.

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

3.

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

4.

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

5.

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

6.

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

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

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

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

2.

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

3.

Description and Estimate of Small Entities ................................................................... 289
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4.

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

5.

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

B.

C.

Amendment to Advisers Act Rule 204-2 ........................................................................ 293
1.

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

2.

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

3.

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

4.

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

5.

Description of Commission Actions to Minimize Effect on Small Entities .................. 297
Exchange Act Rule 17Ad-27 .......................................................................................... 300

XI. Other Matters .................................................................................................................... 301
Statutory Authority .................................................................................................................. 301

I.

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

2

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”).
3

4

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

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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.
5

See T+2 Adopting Release, supra note 4.

6

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

7

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.
8

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
9

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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.
10

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

11

Copies of all comment letters received by the Commission are available at
https://www.sec.gov/comments/s7-05-22/s70522.htm.

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II.

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

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

12

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

13

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.
14

See id. at 10448–49.

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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
B.

Comments
1.

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

15

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
16

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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”).
17

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.
18

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”

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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”).
19

20

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.
21

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.
22

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.

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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

23

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.
24

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

25

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;
26

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”).
27

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.”).
28

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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.
29

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.
30

31

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.

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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

32

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.
33

34

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.
35

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
36

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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).
37

AIMA Letter, supra note 29, at 5.

38

Id.

39

Id.

40

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).

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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

41

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”).
42

MarketAxess Letter, supra note 29, at 1.

43

Id. at 2.

18

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

44

Id.

45

Id.

46

Id.

47

Id.

48

Id.

49

Id.

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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

50

Letter from Suzanne Quinn, Head of North America Compliance, Ballie Gifford Overseas
Limited (Nov. 17, 2022), at 1 (“Ballie Gifford Letter”).
51

Id.

52

Id. at 1–2.

53

Id. at 2.

54

Id.

55

Id.

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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

56

Id.

57

Id.; see also supra note 41 and accompanying text (discussing the same, including other
related recommendations from the IAA).
58

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
59

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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).
60

61

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).
62

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

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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

63

DTCC Letter, supra note 16, at 5

64

FIA PTG Letter, supra note 16, at 1.

65

Id.

66

Id. at 1–2.

67

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

23

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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

68

Id.

69

Id.

70

Id.

71

Id.

72

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).
73

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

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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

74

AGC April Letter, supra note 16, at 3.

75

See id. at 3–4.

76

Id. at 4.

77

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.

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2.

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

78

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.
79

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.
80

SIFMA April Letter, supra note 16, at 11.

81

Id.

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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

82

Id.

83

Id.

84

Id.

85

Id.

86

Id.

87

MFA Letter, supra note 16, at 2.

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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
3.

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

88

See id.

89

Id.

90

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

91

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

92

See id. at 10.

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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

93

Id. at 10–11.

94

Id. at 11.

95

See id. at 10.

96

See id.

97

Id.

98

Id.

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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
4.

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

99

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.

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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.
5.

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.

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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

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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.

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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.

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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.

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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
C.

Final Rule and Discussion
1.

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.

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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.

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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)).

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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.

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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.

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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.

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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).

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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).

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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.

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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
2.

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.

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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.

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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
3.

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.

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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.

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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.

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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.
4.

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).

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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.

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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).

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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
(c) of Rule 15c6-1.
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.

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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.
5.

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.

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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.
6.

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.

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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).

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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.

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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 previous

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3Afd04301785a54f1c. Public record. Not legal advice.