Washington, D.C., April 14, 2022 – In a comment letter on the SEC’s proposal to shorten the securities transaction settlement cycle from the current trade date plus 2 days (T+2) to trade date plus one day (T+1), SIFMA highlights the benefits of the change, including overall risk reduction, capital optimization, and improvements in post-trade processing efficiency.  SIFMA also notes the proposal reflects many of the recommendations included in the report, “Accelerating the U.S. Securities Settlement Cycle to T+1,” which SIFMA drafted in partnership with the Depository Trust and Clearing Corporation (DTCC), the Investment Company Institute (ICI), and Deloitte & Touche LLP in December 2021.

“As part of ongoing efforts to decrease risk in the system, SIFMA, ICI and DTCC started discussions around accelerating the settlement cycle in 2020 and formally initiated the effort to accelerate the settlement cycle to T+1 in early 2021,” said Kenneth E. Bentsen, Jr., SIFMA president and CEO.  “We welcome the SEC’s leadership in supporting the acceleration of the settlement cycle to T+1 as this will provide regulatory certainty to market participants.”

SIFMA supports the SEC providing regulatory clarity on SEC Rule 15c6-1, the rule that covers T+1 settlement. In the letter, SIFMA outlines the following recommendations and comments with respect to the SEC’s accelerated settlement proposal, which it believes would foster the policy goals of the proposal while reducing potential adverse consequences:

• To increase the likelihood of a smooth transition to T+1, SIFMA recommends that the compliance date be the first trading day after a three-day weekend involving a U.S. Federal Holiday. Assuming the Final Rule is published no later than two years before the transition date, SIFMA recommends a compliance date of Tuesday, September 3, 2024 (after Labor Day weekend 2024). This transition time will help the United States align with the Canadian markets, which plan to transition at the same time.

• Importantly, the industry is focused on T+1 settlement not T+0 settlement. T+0 faces a number of challenges and is not feasible for the entire industry at this time. T+0 is complex and would impact multiple products, markets, processes, and investors. We are committed as an industry group to identify and analyze the challenges and issues that need to be consider in moving to a T+0 environment while we transition the industry to T+1.

• SIFMA recommends that the Commission revise Rule 15c6-2 to provide greater flexibility to both broker-dealers and their customers with respect to the allocation, confirmation, and affirmation process. SIFMA does not support the SEC’s written agreement requirements as it would disproportionately impact broker-dealers. SIFMA recommends a policy and procedures approach in support of same day affirmation.

• SIFMA advocates that the Commission retain the exception in paragraph (c) of Rule 15c6-1 that gives firm commitment underwritings additional time to settle if unforeseen circumstances arise. Under SIFMA’s recommendation, 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 the ability to meet a T+1 settlement date.

• SIFMA requests an exemption from SEC Rule 15c6-1 for security-based swaps, which are generally bilateral and executory in nature, meaning that there are numerous terms that the parties typically agree to fulfill at later dates, and the concept of a settlement cycle reflected in Rule 15c6-1 is inapt. Due to this and other differences between security-based swaps and other types of securities, such as stocks and bonds, the SEC subjects them to a specific and comprehensive regulatory regime and we thus request the rule does not apply to security-based swaps.

• SIFMA calls for Commission support for the dematerialization of all physical securities in circulation.

• To expedite delivery of required documentation to better align with T+1 settlement, SIFMA strongly believes e-Delivery should be the default mechanism for prospectus and confirmation delivery. E-Delivery systems are more secure and allow faster confirmation of delivery than traditional postal service. Overall, e-Delivery systems allow for improved methods of communication with investors and a more efficient process for delivering confirmations for broker-dealers in accordance with their obligations under Rule 10b-10.

The full letter can be found here: https://www.sifma.org/resources/submissions/shortening-the-securities-transaction-settlement-cycle/

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SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s one million employees, we advocate on legislation, regulation and business policy affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development.

SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA).