SEC Risk Alert on “T+1” Settlement Cycle

April 3, 2024

What happened?

On March 29, 2024, the Securities and Exchange Commission’s Division of Examinations (EXAMS) published a Risk Alert on changes to the securities transaction settlement cycle. The Risk Alert noted that, as of May 28, 2024, “the standard settlement cycle for most transactions in US securities will shorten from two business days (‘T+2’) to one business day (‘T+1’).” This change is pursuant to amendments to Exchange Act Rule 15c6-1, which the SEC adopted in May of 2023. To promote the completion of allocations, confirmations and affirmations by the end of the trade date for applicable transactions, broker dealers now face requirements to update their written agreements to be compliant or adopt policies and procedures reasonably designed to address the completion of allocations, confirmations and affirmations.

For investment advisers, the SEC adopted corresponding recordkeeping requirements. For any transaction subject to Rule 15c6-2(a), RIAs will need to make and keep records of:

• Records to be maintained:
  • Confirmations received
  • Allocations, if any,
  • Affirmations sent or received
• Standard: The record must include a date and time stamp indicating when each confirmation, allocation or affirmation was sent or received.

The Risk Alert indicated that future exams will consider whether registrants have taken steps to comply with the shortened securities transactions settlement cycle, including the new recordkeeping requirements.

What does that mean for me?

EXAMS noted that the SEC will assess registrants’ compliance with the new amendments through examinations and outreach. While most of the new requirements fall on broker dealers, advisers will need to review their current trading policies and procedures, work with their approved brokers on any new written agreements or modification to existing practices necessary for both parties to be compliant, and adviser must ensure they are keeping the necessary records required by the amended rule. Make no mistake, EXAMS is likely to ask about any policy changes your firm has made due to T+1 and these records are bound to appear on examination request lists after May 28^th.

According to the Risk Alert, the rule’s Adopting Release and the Small Entity Compliance Guide may provide useful guidance for understanding and complying with the rule.

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