Reminder: T+2 Settlement Cycle begins September 5, 2017

August 02, 2017

Securities industry participants should be well-prepared for the introduction of a shortened settlement period for most broker-dealer securities transactions.[1]  Effective on September 5, 2017, amended Exchange Act Rule 15c6-1 prohibits a broker-dealer from effecting or entering into a contract for the purchase or sale of a security that provides for payment of funds and delivery of securities later than T+2, unless otherwise expressly agreed to by the parties at the time of the transaction.[2]  As the SEC has explained: “The amended rule [applies] the T+2 settlement cycle to the same securities transactions currently covered by the T+3 settlement cycle.  These include transactions for stocks, bonds, municipal securities, exchange-traded funds, certain mutual funds, and limited partnerships that trade on an exchange.”[3]

In addition to affecting the trade settlement timeframe, the SEC Staff has noted other effects resulting from T+2 settlement:

[S]hortening the standard settlement cycle could have an ancillary impact on how market participants, including those that are small entities, comply with existing regulatory obligations that are related to the settlement cycle. For example, the existing timeframe for effecting a close-out as required by Rule 204 of Regulation SHO for fail to deliver positions resulting from short sales [is] reduced from T+4 to T+3 based on the existing definition of settlement date in Rule 204. Similarly, with regard to fails to deliver resulting from long sales or sales from bona fide market making activity, the existing close-out requirement [is] reduced from T+6 to T+5.

In addition, shortening the standard settlement cycle to T+2 effectively shortens the timeframe within which broker-dealers, including those that are small entities, must comply with the requirement under Exchange Act Rule 10b-10 to give or send a written confirmation at or before completion of the transaction.  The amendment to Rule 15c6-1(a) also … effectively reduce[s] the number of days (from 13 business days to 12 business days) that broker-dealers, including those that are small entities, … have to obtain possession of customer securities before being required to close out a customer transaction under Exchange Act Rule 15c3-3(m).[4]

The T+2 settlement cycle also changes the payment period for cash accounts under Regulation T, which requires payment within one standard settlement cycle, plus two business days, so the period will change from T+5 to T+4.  The change to Rule 15c6-1 also affects exemptions and no-action relief that incorporate settlement timeframes.  For example, as noted above, the “close-out” periods in Rule 204 of Regulation SHO have decreased by one settlement day.  Collaterally, SEC interpretations and Staff no-action positions relating to those close-out periods have been similarly affected.[5]  Moreover, various self-regulatory organization rules are affected by the change.[6]  Policies and procedures of affected persons should incorporate these changes.

Murphy & McGonigle serves the litigation, enforcement defense, and regulatory counseling needs of clients across the full spectrum of the financial services industry – from national banks, broker-dealers, investment advisers, and hedge funds, to national and international securities markets and exchanges.  If you have any questions regarding the matters covered in this Alert, please contact any of the lawyers listed below or your regular Murphy & McGonigle contact:

Leonard J. Amoruso 212-880-3622
Larry E. Bergmann 202-661-7032
Matthew B. Comstock 202-661-7034
Howard L. Kramer 202-661-7012
Joseph C. Lombard 202-661-7028

[1] See “SEC adopts T+2 settlement cycle for securities transactions,” available at
[2] See Securities Exchange Act Release No. 80295 (March 22, 2017), 82 FR 15564, available at (“T+2 Adopting Release”).
[3] See the Fact Sheet in the SEC Press Release in footnote 1 above.
[4] SEC, Division of Trading and Markets, “Amendment to Securities Transaction Settlement Cycle - A Small Entity Compliance Guide,” available at (footnotes omitted).
[5] See, e.g.: T+2 Adopting Release, 82 FR at 15578 (SEC interpretation on marking as “long” sales of loaned and recalled securities); id. at 15579-15580 (discussion of the impact on the Prime-Broker No-Action Letter, available at; SEC Staff No-Action Letters re: “Request for No-Action Relief under Rule 204 of Regulation SHO with respect to Creations of Covered ETF Shares for Close-Out Purposes…” (April 26, 2017), available at (see incoming letter at 6 n.22); “Request for No-Action Relief under Rue 204 of Regulation SHO with respect to Certain Subsequent Trading Activity on a Close-Out Date” (October 27, 2014), at 1 n.1, available at
[6] See, e.g., Securities Exchange Act Release No. 80004 (February 9, 2017), 82 FR 10835, available at; (correction to order) (amendments to Financial Regulatory Authority rules).

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