Last week, the Securities and Exchange Commission (SEC) amended standing rules regarding broker-dealer securities transaction settlement cycles. The new rules shorten the amount of time between when an investment transaction is placed and when it is actually processed.
Previously, the transaction settlement cycle was set as “T+3”. This refers to the time, in days, that lapse before a transaction is settled. For instance, if you buy or sell a security on Monday, Thursday would be the day the transaction is settled.
The SEC has set the new settlement cycle to “T+2”, meaning only two days bass between transaction and settlement. This change is set to take effect for all transactions on or following September 5, 2017.
We’ll cover what securities investors need to know about the shortened transaction settlement times and how you can learn more about it.
What Does a Shortened Securities Transaction Settlement Cycle Mean?
The most obvious impact is that securities transactions will now be processed quicker. Investors need to be aware of this change, as it affects the amount of time they have to prepare for a transaction. Investors need to:
- Prepare and deliver securities certificates to broker-dealers one day earlier
- Be ready to pay for a transaction one day earlier
You will need to discuss with your broker-dealer exactly how your transaction will be affected, going forward.
What Transaction Settlement Cycles Are Affected?
This change applies to many common forms of securities investments, including:
- Municipal Securities
- Exchange-Traded Funds
- Some Mutual Funds
For more details on how the shortened settlement transaction cycles will affect securities investing, check out the SEC’s order approving the new settlement cycle.