SEC Chair Gensler Announces T+1 Settlement Cycle Implementation
Author: Destiny Aigbe
May 30, 2024
Washington D.C., May 21, 2024 — Securities and Exchange Commission (SEC) Chair Gary Gensler announced today that the U.S. securities market will convert to a T+1 standard settlement cycle on May 28, 2024. This transition is designed to benefit everyday investors and enhance market efficiency.
What is the T+1 Settlement Cycle?
The settlement cycle refers to the period between the trade date (T) and the settlement date when the transaction is finalized. The shift from T+2 to T+1 means that securities transactions will be settled within one business day instead of two. For instance, if an investor sells a stock on Monday, the transaction will be settled, and funds will be available by Tuesday.
Benefits for Investors and the Market
Chair Gensler emphasized that the shortened cycle will allow investors quicker access to their funds and reduce the time and risk associated with transactions. The transition is expected to make market operations more resilient, timely, and orderly. This change also addresses recommendations from the SEC staff following the GameStop events of 2021, aiming to reduce market risks and enhance overall market integrity.
Regulatory Changes and Compliance Requirements
The SEC adopted several rule amendments on February 15, 2023, to facilitate this change:
- Settlement Cycle Reduction: The standard settlement cycle for most broker-dealer transactions will be reduced from T+2 to T+1.
- Improved Institutional Trade Processing: New processing and recordkeeping requirements have been established for broker-dealers and registered investment advisors.
- Straight-Through Processing: Central matching service providers are now required to facilitate straight-through processing, ensuring seamless and automatic transaction processing.
The SEC has historically shortened the settlement cycle to mitigate risks. The initial transition to a T+3 cycle was established in 1993, which was further reduced to T+2 in 2017. Each transition has successfully reduced the credit, market, and liquidity risks faced by market participants.
Preparing for the Transition
Since the SEC's decision to adopt a T+1 settlement cycle, the Commission has been actively monitoring and assisting market participants in their preparation. Efforts have included:
- Continuous Monitoring: SEC staff has been closely observing the readiness of market participants.
- Global Coordination: The SEC has coordinated with regulatory authorities across North America, Europe, Asia, and other jurisdictions.
- Educational Resources: In March, the SEC published a risk alert, FAQs, and an Investor Bulletin to aid market participants in the transition.
As the May 28, 2024 compliance date approaches, the SEC will continue its efforts to ensure a smooth transition to the T+1 settlement cycle, providing ongoing support and resources to the industry.
Conclusion
The move to a T+1 settlement cycle marks a significant step forward in the evolution of the U.S. securities market. By reducing settlement times, the SEC aims to make the market more efficient, resilient, and less risky for all participants. Investors and market participants should stay informed and prepare for the upcoming changes to ensure a seamless transition.
About the Author
Destiny Aigbe
Managing Partner
Aigbe Law PLLC | Dark Alpha Capital
A Corporate and Securities Law Firm
With a robust foundation in law and finance, Destiny Aigbe has carved a distinguished career, underpinned by his pivotal role in orchestrating and managing complex transactions that have propelled companies to significant growth and market prominence. As a seasoned attorney and strategic advisor, Destiny has been instrumental in facilitating over $75 million in capital raises, demonstrating a keen acumen for securing funding and fostering investor confidence.
Destiny's leadership in the execution of six successful public listings, through meticulously structured reverse mergers and registration statements, showcases his adeptness in navigating the intricacies of the public markets and his capacity to guide companies through transformative growth phases. His involvement in five mergers as an operator further illustrates his versatile skill set, extending beyond legal expertise to include hands-on management and operational strategy, though these ventures did not involve funding.
Destiny's professional journey is marked by a commitment to excellence and a diverse range of experiences, from representing a wide spectrum of clients including public and private companies, and investment firms, to holding significant roles within the US government. His tenure with the US Department of State and the National Institutes of Health highlights his adaptability and his contribution to the advancement of entrepreneurial ventures in sectors like biotechnology and nanotechnology through strategic funding initiatives.
An alumnus of Vanderbilt University Law School, Destiny focused on Finance and Mergers & Acquisitions, further honing his expertise with a certificate in Law and Business. His foundational education in Finance was obtained with honors from the University of Maryland's Robert H. Smith School of Business, which laid the groundwork for his subsequent achievements in investment banking and legal practice.
Residing in the Washington, D.C. area, Destiny Aigbe continues to leverage his extensive experience and insightful leadership to drive innovation, growth, and success for his clients and the ventures he is involved with.
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