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SEC Adopts T+2 Settlement

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On March 22, 2017, the Securities and Exchange Commission (the “SEC”) amended Exchange Act Rule 15c6-1(a), which shortens the standard settlement cycle for most broker-dealer transactions to T+2 (two days after the trade date) from the previous T+3 standard. The amended rule aims to reduce “credit, market, and liquidity risk . . . for US market participants” by lowering the number of unsettled trades outstanding at any given time and by limiting the time parties are exposed to such trades. The new rule will go into force 60 days after publication in the Federal Register, and market participants will have to comply beginning on September 5, 2017, which is the target implementation date identified by the Industry Steering Committee last year.

The SEC believes that the benefits of the new T+2 standard will be spread widely throughout the industry, with, for example, central counterparties demanding less collateral and market participants gaining quicker access to funds. Additionally, the SEC noted that adopting T+2 would harmonize the standard U.S. settlement cycle with that of many non-U.S. cycles.

At the same time, however, the SEC noted that the new rule does not affect the extended settlement provisions that are currently in effect under Rule 15c6-1. Specifically, the amendment leaves unchanged the provisions of Rule 15c6-1 that permit:

  • broker-dealers to expressly agree at the time of the trade to settle beyond the standard settlement cycle; and
  • a longer settlement cycle (settlement on the fourth business day after the date of contract) for firm commitment underwritten transactions of securities for cash that price after 4:30 p.m. ET without express agreement by the parties at the time of the transaction.

For example, we anticipate that market participants would continue to utilize longer settlement cycles when seeking to coordinate a capital markets transaction with a related transaction, such as a tender offer or acquisition closing, or in circumstances where the completion of the underlying offering documentation within the shorter settlement cycle is impracticable. In these situations, it is customary to include disclosure in the prospectus supplement or free writing prospectus disclosing the longer settlement cycle.

Visit our website to learn more about V&E’s Capital Markets practice. For more information, please contact Vinson & Elkins lawyers Greg Cope, Ramey Layne, or Mike Telle.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.