Rule Change Updates

Effective September 5, 2017, the standard settlement cycle for most U.S. securities transactions will be shortened by one business day to T+2 (trade date plus 2 business days). According to the SEC, this will improve operational efficiency, reduce counterparty risk, and increase liquidity in U.S. securities markets. The  change also harmonizes the U.S. settlement cycle with that of other major markets in Europe and Asia that already operate under a shortened cycle.

Effect on Licensing Exams

Once the new settlement cycle launches it is testable on all regulatory exams. However, questions on new rules and regulations are often slowly introduced during the weeks following a new rule’s effective date. If you are taking an exam on or after September 5th, be prepared to answer questions using T+2 settlement, but look for “T+3” answers if T+2 is not an available answer choice.

Under the T+2 settlement cycle, securities transactions will settle on the second business day after the trade date. This means that no later than two business days after the transaction buyers must deliver payment and sellers must deliver the shares.  For example, a transaction executed on Monday will now require payment and delivery on Wednesday (T+2), whereas under the T+3 cycle settlement was on Thursday.

The T+2 settlement will apply to the same securities transactions currently covered by the T+3 settlement cycle.  These include transactions for stocks, corporate bonds, municipal securities, exchange-traded funds, certain mutual funds, and limited partnerships that trade on an exchange.  The amended rule does not change T + 1 settlement that applies to U.S. Government securities and option contracts.

T+2 settlement will affect many rules that rely on settlement as a timing metric. This includes:

  • Ex-dividend dates
  • Accrued interest
  • Trade completion and reporting
  • Closing of fails

For example,  under the  T+2 settlement cycle, the ex-dividend date will change to one business day before the record date. A customer must purchase the stock before the ex-dividend date to become owner of the stock on the record date and receive the dividend.  The buyer will purchase “ex” or without the dividend one business day prior to the record date.


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