The Financial Industry Regulatory Authority (FINRA) has adopted amendments to conform its rules with the Securities and Exchange Commission’s (SEC) amendments to Rule 15c6-1 and adoption of Rule 15c6-2 under the Securities Exchange Act of 1934 to shorten the standard settlement cycle for most broker-dealer transactions from two business days after the trade date (T+2) to one business day after the trade date (T+1).
FINRA is working with other regulators and market participants to ensure the industry is prepared for the transition to T+1. In this regard, FINRA has conducted an outreach program with certain listing and clearing firms to discuss, among other things, the actions the firms have taken and their readiness to transition to the shortened settlement cycle, and FINRA will conduct another such program with additional business in the first quarter of 2024.
FINRA has also helped address questions and concerns from firms about the T+1 settlement cycle as they arise.
FINRA reminds firms that they should consider all the potential impacts that the new T+1 settlement cycle will have on their business and the changes that will be needed to address those impacts. Although the potential impacts and changes will vary from firm to firm based on things such as a firm’s lines of business, client base, infrastructure and internal operations, FINRA recommends that firms particularly consider the following:
- settlement of US depository and marketable funds with underlying foreign securities. and
- the shortened timetable to ensure timely settlement of trades at the end of the day.
FINRA further reminds firms that new Rule 15c6-2(a) requires each broker-dealer participating in the allocation, confirmation, or confirmation process with another party to either:
- enter into written agreements with the relevant parties to ensure the completion of allocations, confirmations, confirmations or any combination thereof as soon as technologically practicable and no later than the end of the day on the trade date; or
- establish, maintain and enforce written policies and procedures reasonably designed to ensure that allocations, confirmations, confirmations or any combination thereof are completed as soon as technologically practicable and no later than the end of the day on the trade date.
Firms should discuss this requirement with all appropriate suppliers or clearing firms with whom they work to develop processes and procedures so that allocations, confirmations and confirmations are completed within the necessary time frame. Firms should also communicate with their market-side clients, who are integral in providing trade allocation and matching information. Companies should focus on ensuring that customers understand their responsibilities and the processes that will be implemented to achieve same-day confirmation.
To help firms ensure they are prepared for the transition to the shortened settlement cycle, FINRA encourages all firms to participate in the industry’s T+1 testing program, which is designed to allow firms to test for the entire cycle trade lifecycle, including trade confirmation, confirmation, clearing, settlement and trade exception flows.
FINRA also recommends that firms test with appropriate testing facilities for trade reporting changes and the change from 2:30 p.m. ET to noon ET for when match-eligible clearing trades are automatically locked and submitted to the DTCC.