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SEC proposes two-day settlement time for securities transactions, enhanced clearing standards

The SEC on Wednesday proposed to shorten the standard settlement time for broker-dealer securities transaction to two business days after the trade date, or T+2, from the current three-day settlement cycle.

The Securities and Exchange Commission also adopted enhanced operational and governance standards for securities clearing agencies deemed systemically important, according to news releases on the SEC's website. Those standards apply to financial risk management, recovery planning, operations, and disclosures to market participants and the public.

The standards, called for in the Dodd-Frank Wall Street Reform and Consumer Protection Act, will also apply to agencies involved in complex transactions, such as security-based swaps.

Additionally, the agency proposed to apply the enhanced standards for all SEC-registered central counterparties.

The reduced settlement cycle proposal, if ultimately approved by the SEC, would bring the U.S. in line with Europe, where T+2 settlement already is used. A shorter cycle is seen as reducing the credit, market and liquidity risk that can occur with a longer settlement cycle.

The enhanced clearinghouse standards apply to all SEC-registered securities clearing agencies designated as systemically important by the Financial Stability Oversight Council, according to a news release.

The proposals and the new clearing standards will be the subject of 60-day comment periods following their publication in the Federal Register. The standards will take effect after the 60-day period, while the proposals for T+2 and applying enhanced standards to central counterparties will require approval from the SEC following the comment period.