The recent change in the securities settlement cycle to T+2 (from T+3) has affected when trades settle and other rules and regulations that reference settlement date. These changes are detailed below.
The new settlement cycle is testable on all exams that deal with securities transactions, but the more detailed changes to close-outs and related rules are most relevant to principal level exams and the Series 7, Series 57, and Series 99.
- NEW CLOSEOUT DATES – The industry’s move to T+2 does not change Regulation SHO or SEC Rule 204. However, the close out periods within Rule 204 will accelerate since Rule 204 close out periods are measured from settlement date.
- Short sale fails must be closed on T+3. The participant must close out a failure to deliver for a short sale transaction by no later than the beginning of regular trading hours on the settlement day following the settlement.
- Long sale fails must be closed on T+5. If a participant has a failure to deliver that the participant can demonstrate on its books and records resulted from a long sale, the participant must close out the failure to deliver by no later than the beginning of regular trading hours on the third consecutive settlement day following the settlement date.
- Bona Fide Market Making fails (long or short) must be closed on T+5. Market makers must close fails no later than the beginning of regular trading hours on the third consecutive settlement day following the settlement date
- Customer Sale Close Out is T+12 (15c3-3(m)). If a broker or dealer executes a customer long sell order and has not obtained possession of the securities from the customer within 10 business days after the settlement date (2 business after trade date), the broker or dealer must immediately close the transaction with the customer by purchasing securities of like kind and quantity
- Note: the 10 business days from settlement has not changed, but the time between trade date and settlement has.
- PROSPECTUS DELIVERY
- Prospectus delivery requirements will be keyed to a T+2 settlement under the Securities Act of ’33.
- TRADE CONFIRMATION DELIVERY
- Broker-dealers must now send trade confirmations to a customer “at or before the completion of the transaction,” which is when a customer first pays for purchased securities, typically on settlement, which is now T+2, not T+3.
- THRESHOLD SECURITIES
- The threshold security close-out requirements is not changed. Fails of a threshold security must be closed after thirteen consecutive settlement days.
For additional information about the change to settlement date, see our August 29, 2017 blog post.