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SEC gives green light for T+2 implementation

The SEC on Wednesday approved reducing the standard settlement cycle for most broker-dealer securities transactions by one day, to two business days.

The change in the settlement cycle to what is called T+2, trade plus two days, will become effective Sept. 5.

The cycle reduction is intended to enhance efficiency and reduce risk, and would align the U.S. with the European Union, which has used a T+2 cycle since 2014.

“As technology improves, new products emerge and trading volumes grow, it is increasingly obvious that the outdated T+3 settlement cycle is no longer serving the best interests of the American people,” Michael Piwowar, acting SEC chairman, said at an agency meeting Wednesday.

The move to T+2 follows recommendations made by the U.S. T+2 Steering Committee, a panel of buy-side and sell-side representatives organized by the Depository Trust and Clearing Corp., a U.S. clearing and settlement service provider. Former SEC Chairwoman Mary Jo White endorsed those recommendations in 2015.

Proponents of the reduced cycle say it will reduce counterparty risk; harmonize settlement times between the two largest markets, the U.S. and Europe; simplify trade-data matching among parties involved in the settlement process; and increase short-term liquidity. However, others have expressed concern that the shortened cycle will make it more difficult to correct errors in complex trades.