Article
SEC’s T+1 settlement requirements, impacts, and technology to help
Sept. 28, 2023 · Authored by Matthew McKittrick
The SEC’s new trade day plus one (T+1) business day settlement requirements shorten the amount of time companies have to perform all tax calculations, deliver shares to brokers, and disperse funds due for exercise costs or taxes.
With a compliance date of May 28, 2024, it’s important that organizations take time to assess their existing infrastructure and look for ways to condense the time needed to process a standard option exercise, restricted stock release, or an employee stock purchase plan (ESPP) purchase.
Below, you’ll find:
- An overview of the T+1 settlement
- How the requirements will impact your organization
- Technology solutions for compliance
- Next steps
What is the T+1 settlement?
The final rule amends Rule 15c6-1 of the Securities Exchange Act of 1934. It shortens the standard settlement cycle from two business days after the trade date — known as T+two — to one business day after the trade date, or T+1.
The final rule:
- Prohibits broker-dealers from the purchase or sale of a security that provides for payment of funds and delivery of securities later than the first business day after the date of the contract (T+1), unless otherwise expressly agreed to by the parties at the time of the transaction
- Adopts new Rule 15c6-2 of the Exchange Act to require broker-dealers engaging in the allocation, confirmation, or affirmation process with another party or parties to achieve settlement of a securities transaction subject to the T+1 settlement cycle
For the latter rule, broker-dealers are required to either:
- Enter into written agreements with the relevant parties to ensure completion of the processes as soon as technologically possible and no later than the end of the trade day
- Establish, maintain, and enforce written policies and procedures reasonably designed to ensure completion of the processes as soon as technologically possible and no later than the end of the trade day
Related sections
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.