10436 Federal Register / Vol. 87, No. 37 / Thursday, February 24, 2022 / Proposed Rules 

1See infra Part III.A, notes 83–85, and 

accompanying text (discussing the types of 

securities to which Rule 15c6–1 applies, which 

includes equities, corporate bonds, unit investment 

trusts (‘‘UITs’’), mutual funds, exchange-traded 

funds (‘‘ETFs’’), American Depositary Receipts 

(‘‘ADRs’’), security-based swaps, and options). 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 232, 240, and 275 

[Release Nos. 34–94196, IA–5957; File No. 

S7–05–22] 

RIN 3235–AN02 

Shortening the Securities Transaction 

Settlement Cycle 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Proposed rule. 

SUMMARY: The Securities and Exchange 

Commission (‘‘Commission’’) proposes 

rules 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’’). To facilitate a 

T+1 standard settlement cycle, the 

Commission also proposes new 

requirements for the processing of 

institutional trades by broker-dealers, 

investment advisers, and certain 

clearing agencies. These requirements 

are designed to protect investors, reduce 

risk, and increase operational efficiency. 

The Commission proposes to require 

compliance with a T+1 standard 

settlement cycle, if adopted, by March 

31, 2024. The Commission also solicits 

comment on how best to further 

advance beyond T+1. 

DATES: Comments should be received on 

or before April 11, 2022. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/submitcomments.htm); or 

• Send an email to rule-comments@

sec.gov. Please include File Number S7– 

05–22 on the subject line. 

Paper Comments 

• Send paper comments to Secretary, 

Securities and Exchange Commission, 

100 F Street NE, Washington, DC 

20549–1090. 

All submissions should refer to File 

Number S7–05–22. This file number 

should be included on the subject line 

if email is used. To help us process and 

review your comments more efficiently, 

please use only one method. The 

Commission will post all comments on 

the Commission’s website (http://

www.sec.gov/rules/proposed.shtml). 

Comments are also available for website 

viewing and printing in the 

Commission’s Public Reference Room, 

100 F Street NE, Washington, DC 20549, 

on official business days between the 

hours of 10:00 a.m. and 3:00 p.m. 

Operating conditions may limit access 

to the Commission’s public reference 

room. All comments received will be 

posted without change. Persons 

submitting comments are cautioned that 

the Commission does not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. 

Studies, memoranda, or other 

substantive items may be added by the 

Commission or staff to the comment file 

during this rulemaking. A notification of 

the inclusion in the comment file of any 

such materials will be made available 

on the Commission’s website. To ensure 

direct electronic receipt of such 

notifications, sign up through the ‘‘Stay 

Connected’’ option at www.sec.gov to 

receive notifications by email. 

FOR FURTHER INFORMATION CONTACT: 

Matthew Lee, Assistant Director, Susan 

Petersen, Special Counsel, Andrew 

Shanbrom, Special Counsel, Jesse 

Capelle, Special Counsel, Tanin Kazemi, 

Attorney-Adviser, or Mary Ann 

Callahan, Senior Policy Advisor, Office 

of Clearance and Settlement at (202) 

551–5710, Division of Trading and 

Markets; Amy Miller, Senior Counsel, at 

(202) 551–4447, Emily Rowland, Senior 

Counsel, at (202) 551–6787, and Holly 

H. Miller, Senior Policy Advisor, at 

(202) 551–6706, Division of Investment 

Management; U.S. Securities and 

Exchange Commission, 100 F Street NE, 

Washington, DC 20549–7010. 

SUPPLEMENTARY INFORMATION: The 

Commission proposes rules to shorten 

the standard settlement cycle to T+1 

and improve the processing of 

institutional trades by broker-dealers, 

investment advisers, and certain 

clearing agencies. First, the Commission 

proposes to amend 17 CFR 240.15c6–1 

(‘‘Rule 15c6–1’’) to shorten the standard 

settlement cycle for most broker-dealer 

transactions from T+2 to T+1 and to 

repeal the T+4 standard settlement cycle 

for firm commitment offerings priced 

after 4:30 p.m.,1 as discussed in Part 

III.A. Second, the Commission proposes 

17 CFR 240.15c6–2 (‘‘Rule 15c6–2’’) to 

prohibit broker-dealers from entering 

into contracts with their institutional 

customers unless those contracts require 

that the parties complete allocations, 

confirmations, and affirmations by the 

end of the trade date, a practice the 

securities industry has commonly 

referred to as ‘‘same-day affirmation,’’ as 

discussed in Part III.B. Third, the 

Commission proposes to amend 17 CFR 

275.204–2 (‘‘Rule 204–2’’) to require 

investment advisers that are parties to 

contracts under Rule 15c6–2 to make 

and keep records of their allocations, 

confirmations, and affirmations 

described in Rule 15c6–2, as discussed 

in Part III.C. Fourth, the Commission 

proposes 17 CFR 240.17Ad–27 (‘‘Rule 

17Ad–27’’) to require a clearing agency 

that is a central matching service 

provider (‘‘CMSP’’) to establish policies 

and procedures to facilitate straightthrough processing, as discussed in Part 

III.D. To assess and manage the 

potential impact of a T+1 settlement 

cycle, the Commission is also soliciting 

comment on the following Commission 

rules and regulations: Regulation SHO; 

the financial responsibility rules for 

broker-dealers; requirements in 17 CFR 

240.10b–10 (‘‘Rule 10b–10’’); and 

requirements related to prospectus 

delivery. The Commission proposes to 

require compliance with each of the 

proposed rules and rule amendments by 

March 31, 2024. The Commission 

solicits comment on this proposed 

compliance date in Part III.F. 

In addition, accelerating beyond a 

T+1 settlement cycle to a same-day 

standard settlement cycle (i.e., 

settlement no later than the end of trade 

date, or ‘‘T+0’’) is an objective that the 

Commission is actively assessing; 

however, the Commission is not 

proposing rules to require a T+0 

standard settlement cycle at this time. In 

Part IV, the Commission discusses and 

requests comment regarding potential 

pathways to T+0, as well as certain 

challenges to implementing T+0 that 

have been identified by market 

participants. The comments received 

will be used to inform any future action 

to further shorten the settlement cycle 

beyond T+1. 

Table of Contents 

I. Introduction 

II. Background 

A. Relevant History 

B. Current State of Post-Trade Processing 

1. Clearing Agencies—CCPs, CSDs, and 

CMSPs 

2. Broker-Dealers 

3. Retail and Institutional Investors 

C. Recent Initiatives and Market Events 

III. Proposals for T+1 

A. Shortening the Length of the Standard 

Settlement Cycle 

1. Proposed Amendment to Rule 15c6–1(a) 

2. Basis for Shortening the Standard 

Settlement Cycle to T+1 

3. Proposed Deletion of Rule 15c6–1(c) and 

Conforming Technical Amendments to 

Rule 15c6–1 


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2See Kenneth S. Levine, Was Trade Settlement 

Always on T+3? A History of Clearing and 

Settlement Changes, Friends of Financial History 

No. 56, at 20, 22 (Summer 1996), https://

archive.org/details/friendsoffinanci00muse_12/ 

page/20/mode/2up?view=theater. 

3See Levine, supra note 2, at 23–25. 

4See Report of the Bachmann Task Force on 

Clearance and Settlement Reform in U.S. Securities 

Markets, Submitted to The Chairman of the U.S. 

Securities and Exchange Commission (May 1992) 

(‘‘Bachmann Report’’), https://www.govinfo.gov/ 

content/pkg/FR-1992-06-22/pdf/FR-1992-06-22.pdf. 

The task force was headed by John W. Bachmann, 

the Managing Principal of Edward D. Jones & Co. 

of St. Louis, Missouri. The recommendations in the 

Bachmann Report were intended to help inform the 

Commission’s approach to considering reforms of 

the national system for clearance and settlement 

(‘‘National C&S System’’). 

5See id. 

6See id. at 4. Specifically, the concept posits that 

the length of time between the execution and 

settlement of a securities transaction correlates to 

the financial risk exposure inherent in the 

transaction, and that shortening this length of time 

can reduce the overall risk exposure. 

7 Id. 

8 Id. at 6. 

9Exchange Act Release No. 33023 (Oct. 6, 1993), 

58 FR 52891 (Oct. 13, 1993) (‘‘T+3 Adopting 

Release’’). In adopting Rule 15c6–1, the 

Commission set a compliance date of June 1, 1995. 

10Exchange Act Release No. 80295 (Mar. 22, 

2017), 82 FR 15564, 15601 (Mar. 29, 2017) (‘‘T+2 

Adopting Release’’). 

4. Basis for Eliminating T+4 Standard for 

Certain Firm Commitment Offerings 

5. Request for Comment 

B. New Requirement for ‘‘Same-Day 

Affirmation’’ 

1. Proposed Rule 15c6–2 Under the 

Exchange Act 

2. Basis for Requiring Affirmation No Later 

Than the End of Trade Date 

3. Request for Comment 

C. Proposed Amendment to Recordkeeping 

Rule for Investment Advisers 

1. Request for Comment 

D. New Requirement for CMSPs To 

Facilitate Straight-Through Processing 

1. Policies and Procedures To Facilitate 

Straight-Through Processing 

2. Annual Report on Straight-Through 

Processing 

3. Request for Comment 

E. Impact on Certain Commission Rules 

and Guidance and SRO Rules 

1. Regulation SHO Under the Exchange Act 

2. Financial Responsibility Rules Under 

the Exchange Act 

3. Rule 10b–10 Under the Exchange Act 

4. Prospectus Delivery and ‘‘Access Versus 

Delivery’’ 

5. Changes to SRO Rules and Operations 

F. Proposed Compliance Date 

IV. Pathways to T+0 

A. Possible Approaches to Achieving T+0 

1. Wide-Scale Implementation 

2. Staggered Implementation Beginning 

With Key Infrastructure 

3. Tiered Implementation Beginning With 

Pilot Programs 

B. Issues To Consider for Implementing 

T+0 

1. Maintaining Multilateral Netting at the 

End of Trade Date 

2. Achieving Same-Day Settlement 

Processing 

3. Enhancing Money Settlement 

4. Mutual Fund and ETF Processing 

5. Institutional Trade Processing 

6. Securities Lending 

7. Access to Funds and/or Prefunding of 

Transactions 

8. Potential Mismatches of Settlement 

Cycles 

9. Dematerialization 

V. Economic Analysis 

A. Background 

B. Economic Baseline and Affected Parties 

1. Central Counterparties 

2. Market Participants—Investors, BrokerDealers, and Custodians 

3. Investment Companies and Investment 

Advisers 

4. Current Market for Clearance and 

Settlement Services 

C. Analysis of Benefits, Costs, and Impact 

on Efficiency, Competition, and Capital 

Formation 

1. Benefits 

2. Costs 

3. Economic Implications Through Other 

Commission Rules 

4. Effect on Efficiency, Competition, and 

Capital Formation 

5. Quantification of Direct and Indirect 

Effects of a T+1 Settlement Cycle 

D. Reasonable Alternatives 

1. Amend 15c6–1(c) to T+2 

2. Propose 17Ad–27 To Require Certain 

Outcomes 

E. Request for Comment 

VI. Paperwork Reduction Act 

A. Proposed Amendment to Rule 204–2 

B. Proposed Rule 17Ad–27 

C. Request for Comment 

VII. Small Business Regulatory Enforcement 

Fairness Act 

VIII. Regulatory Flexibility Act 

A. Proposed Rules and Amendments for 

Rules 15c6–1, 15c6–2, and 204–2 

1. Reasons for, and Objectives of, the 

Proposed Actions 

2. Legal Basis 

3. Small Entities Subject to the Proposed 

Rule and Proposed Rule Amendments 

4. Projected Reporting, Recordkeeping, and 

Other Compliance Requirements 

5. Duplicative, Overlapping, or Conflicting 

Federal Rules 

6. Significant Alternatives 

7. Request for Comment 

B. Proposed Rule 17Ad–27 

Statutory Authority and Text of the 

Proposed Rules and Rule Amendments 

I. Introduction 

In the 1920s, capital markets 

maintained a one-day settlement cycle 

for transactions in securities.2 Over the 

course of the twentieth century, the 

length of the settlement cycle grew to 

five days—a response to the evergrowing number of investors, the rising 

volume of transactions, and the 

increasing complexity of the processing 

infrastructure necessary to facilitate the 

settlement of those transactions.3 Since 

the late 1980s, the Commission, seeking 

to protect investors and reduce risk, has 

been working with the securities 

industry to minimize the time it takes 

for securities transactions to settle. The 

first initiative to shorten the standard 

settlement cycle emerged following 

studies by government and industry 

groups after the October 1987 market 

break, including the Report of the 

Bachmann Task Force on Clearance and 

Settlement Reform in U.S. Securities 

Markets.4 The Bachmann Report 

presented multiple recommendations to 

improve the securities market by 

improving the safety and soundness of 

the National C&S System.5 The 

Bachmann Report, submitted to the 

Commission in May 1992, 

recommended that by 1994 the 

Commission shorten the standard 

settlement cycle from five days to three 

days. 

To support its recommendation, the 

Bachmann Report used the concept 

‘‘time equals risk’’ to illustrate that ‘‘less 

time between a transaction and its 

completion reduces risk.’’ 6 In addition, 

the report stated that a ‘‘shorter 

settlement cycle will also uncover 

potential problems sooner, before they 

mushroom or begin to cascade 

throughout the industry.’’ 7 In 

recommending that the Commission 

shorten the standard settlement cycle, 

the Bachmann Report also stated, ‘‘[t]he 

system and legal initiatives necessary to 

accomplish the T+3 settlement for 

corporate and municipal securities 

should serve as a stepping stone to 

further reductions in settlement periods 

over time as technology and systems 

permit.’’ 8

In 1993, the Commission adopted 

Rule 15c6–1 to shorten this process by 

requiring the settlement of most 

securities transactions within three 

business days (‘‘T+3’’),9 and in 2017, the 

Commission amended the rule to 

require settlement within two business 

days (‘‘T+2’’).10 The Commission 

believes that further shortening of the 

settlement cycle would promote 

investor protection, reduce risk, and 

increase operational efficiency. This 

view has been informed by two recent 

episodes of increased market 

volatility—in March 2020 following the 

outbreak of the COVID–19 pandemic, 

and in January 2021 following 

heightened interest in certain ‘‘meme’’ 

stocks. 


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11See, e.g., Staff Report on Equity and Options 

Market Structure Conditions in Early 2021 (Oct. 14, 

2021), https://www.sec.gov/files/staff-report-equityoptions-market-struction-conditions-early-2021.pdf. 

This report represents the views of Commission 

staff. It is not a rule, regulation, or statement of the 

Commission. The Commission has neither 

approved nor disapproved its content. This report, 

like all staff reports, has no legal force or effect: It 

does not alter or amend applicable law, and it 

creates no new or additional obligations for any 

person. 

12 In this release, the Commission uses ‘‘T+0’’ to 

refer to a settlement cycle that is complete by the 

end of the day on which the trade was executed 

(‘‘trade date’’). This is sometimes referred to as 

‘‘same-day’’ settlement and is distinct from realtime settlement, which contemplates settlement in 

real time or near real time (i.e., immediately 

following trade execution) on a gross basis. See 

infra Part IV (further discussing the concept of 

‘‘T+0’’ as used in this release, as well as the related 

concepts of real-time settlement and rolling 

settlement, where trades are netted and settled 

intraday on a recurring basis). 

13Part IV discusses potential paths to and 

challenges associated with implementing a T+0 

settlement cycle. For example, activities that are 

linked to the length of the settlement cycle include 

securities lending activities. See infra Part IV.B.6. 

14 DTCC is the holding company for three 

registered clearing agencies: The Depository Trust 

Company (‘‘DTC’’), the National Securities Clearing 

Corporation (‘‘NSCC’’), and the Fixed Income 

Clearing Corporation (‘‘FICC’’). It is also the holding 

company for DTCC ITP Matching (US) LLC (‘‘DTCC 

ITP Matching’’), which operates a CMSP pursuant 

to an exemption from registration as a clearing 

agency. 

15 ICI is an association representing regulated 

funds globally, including mutual funds, ETFs, 

closed-end funds, and unit investment trusts in the 

United States, and similar funds offered to investors 

in jurisdictions worldwide. 

16SIFMA is a trade association for broker-dealers, 

investment banks, and asset managers operating in 

the U.S. and global capital markets. 

17See infra note 18. 

18 Deloitte, DTCC, ICI, & SIFMA, Accelerating the 

U.S. Securities Settlement Cycle to T+1 (Dec. 1, 

2021) (‘‘T+1 Report’’), https://www.sifma.org/wpcontent/uploads/2021/12/Accelerating-the-U.S.- 

Securities-Settlement-Cycle-to-T1-December-1- 

2021.pdf. See infra Part II.C (summarizing the 

recommendations in the T+1 Report). 

19See infra Part III.F (discussing the proposed 

compliance date). The T+1 Report contemplates 

implementation of T+1 in the first half of 2024, and 

the Commission believes that sufficient time is 

available to achieve T+1 by March 31, 2024, as 

discussed further in Part III.F. 

20The term ‘‘straight-through processing’’ 

generally refers to processes that allow for the 

automation of the entire trade process from trade 

execution through settlement without manual 

intervention. See infra Part III.D.1 (further 

discussing the concept of straight-through 

processing). 

21See SIA, T+1 Business Case Final Report (July 

2000) (‘‘SIA Business Case Report’’), https://

www.sifma.org/wp-content/uploads/2017/05/t1- 

business-case-final-report.pdf. 

22See The Boston Consulting Group (‘‘BCG’’), 

Cost Benefit Analysis of Shortening the Settlement 

Cycle (Oct. 2012) (‘‘BCG Study’’), https://

www.dtcc.com/∼/media/Files/Downloads/ 

WhitePapers/CBA_BCG_Shortening_

the_Settlement_Cycle_October2012.pdf. 

23 Id. at 9. 

These two episodes have highlighted 

potential vulnerabilities in the U.S. 

securities market that shortening the 

standard settlement cycle could help 

mitigate.11 Accordingly, the 

Commission is proposing a transition to 

a T+1 standard settlement cycle. The 

Commission also believes that achieving 

settlement by the end of trade date 

(‘‘T+0’’) could benefit investors as 

well.12 While the Commission is not 

proposing a T+0 standard settlement 

cycle at this time, the Commission 

would like to better understand the 

challenges that market participants may 

need to address and resolve to achieve 

T+0. Accordingly, the Commission 

solicits comments on potential paths to 

and challenges associated with 

achieving a T+0 standard settlement 

cycle in Part IV.13

On December 1, 2021, the Depository 

Trust and Clearing Corporation 

(‘‘DTCC’’),14 the Investment Company 

Institute (‘‘ICI’’),15 the Securities 

Industry and Financial Markets 

Association (‘‘SIFMA’’),16 and Deloitte 

& Touche LLP (‘‘Deloitte’’) 17 published 

a report that presented industry 

recommendations to implement a T+1 

standard settlement cycle in the U.S.18

The Commission has considered the 

potential requirements, benefits, and 

costs associated with further shortening 

the standard settlement cycle in the 

U.S., and proposes to require that the 

standard settlement cycle transition to 

T+1, if adopted, by March 31, 2024.19

As the securities industry considers 

how it would implement T+1, the 

Commission believes that market 

participants also generally should 

consider investments in new technology 

or operations now that can be effective 

over the long term at maximizing the 

benefits of risk reduction and improved 

efficiency in post-trade processing that 

accompany shortening the settlement 

cycle, mindful of efforts to shorten the 

settlement cycle beyond T+1. 

In Part II, the Commission provides (i) 

a history of the key Commission and 

industry efforts to shorten the standard 

settlement cycle, including past 

concerns related to T+1 and T+0 

settlement cycles, (ii) an overview of the 

current state of post-trade processing in 

the market for U.S. equity securities, 

and (iii) a summary of other recent 

market events related to this rule 

proposal. In Part III, the Commission 

describes the rule proposals that are 

necessary to achieve T+1. In Part IV, the 

Commission discusses the potential 

pathways and challenges associated 

with implementing a standard T+0 

settlement cycle and requests comment 

on any and all aspects of achieving T+0. 

II. Background 

In developing the rule proposals 

included in this release, the 

Commission considered the history 

related to shortening the standard 

settlement cycle, the current state of 

post-trade processing in the U.S. 

equities market, and recent initiatives 

and market events that have focused 

attention in the securities industry and 

the public on the appropriate length of 

the standard settlement cycle. Each of 

these is discussed further below. 

A. Relevant History 

The first industry-level engagement 

on T+1 began in the late 1990s and 

developed a business case for using 

straight-through processing to achieve 

T+1,20 estimating that an industry 

investment of $8 billion in improved 

settlement technologies and processes 

could reduce settlement exposures by 

67% and return $2.7 billion in annual 

savings. Implementation of the building 

blocks described in the Securities 

Industry Association (‘‘SIA’’) Business 

Case Report was postponed when 

improving operational resilience 

following the terrorist attacks of 

September 11, 2001 took priority,21

although many of them were 

subsequently achieved. 

In 2012, DTCC commissioned a new 

study that found moving to a T+2 

settlement cycle would be significantly 

less costly and take less time to 

implement than either an immediate or 

gradual transition to T+1, while still 

delivering significant benefits with 

respect to reducing risks and costs.22

The BCG Study ruled out as infeasible 

at the time a settlement cycle with 

settlement on trade date (i.e., T+0) 

‘‘given the exceptional changes required 

to achieve it and weak support across 

the industry.’’ 23 It concluded that a T+0 

settlement cycle would face major 

challenges with processes such as trade 

reconciliation and exception 

management, securities lending, and 

transactions with foreign counterparties 

(especially where time zones are least 

aligned). It also concluded that payment 

systems used for final settlement would 

need to be significantly altered to enable 

transactions late in the day. The BCG 

Study noted that market participants 

were aware that a T+2 settlement cycle 

could be accomplished through mere 

compression of timeframes and 

corresponding rule changes but that 

implementing T+2 without certain 

building blocks would limit the amount 

of savings that would be realized across 

the industry. 


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24 Id. 

25See Press Release, DTCC, Industry Steering 

Committee and Working Group Formed to Drive 

Implementation of T+2 in the U.S. (Oct. 16, 2014), 

http://www.dtcc.com/news/2014/october/16/ 

ust2.aspx. 

26PricewaterhouseCoopers LLP & ISG, Shortening 

the Settlement Cycle: The Move to T+2 (June 2015) 

(‘‘ISG White Paper’’), http://www.ust2.com/pdfs/ 

ssc.pdf. This release uses ‘‘ISG’’ rather than ‘‘ISC’’ 

(‘‘Industry Steering Committee,’’ the term used in 

the ISG White Paper) when referring to the T+2 

effort so that this release clearly distinguishes 

between the ISC’s current work on T+1, as reflected 

in the T+1 Report, supra note 18, from past work 

on T+2. 

27 Deloitte & ISG, T+2 Industry Implementation 

Playbook (Dec. 18, 2015) (‘‘T+2 Playbook’’), http:// 

www.ust2.com/pdfs/T2-Playbook-12-21-15.pdf. 

28 Investor Advisory Committee (‘‘IAC’’), U.S. 

Securities and Exchange Commission, 

Recommendation of the Investor Advisory 

Committee: Shortening the Settlement Cycle in U.S. 

Financial Markets (Feb. 12, 2015), https://

www.sec.gov/spotlight/investor-advisorycommittee-2012/settlement-cycle-recommendationfinal.pdf. 

29 Id. 

30T+2 Adopting Release, supra note 10; see also 

Exchange Act Release No. 78962 (Sept. 28, 2016), 

81 FR 69240 (Oct. 5, 2016) (‘‘T+2 Proposing 

Release’’). 

31NSCC and DTC are subsidiaries of DTCC and 

each a clearing agency registered with the 

Commission. See supra note 14. 

32See Order Granting Exemption from 

Registration as a Clearing Agency for Global Joint 

Venture Matching Services—U.S., LLC, Exchange 

Act Release No. 44188 (Apr. 17, 2001), 66 FR 20494, 

20501 (Apr. 23, 2001); Order Approving 

Applications for an Exemption from Registration as 

a Clearing Agency for Bloomberg STP LLC and 

SS&C Techs., Inc., Exchange Act Release No. 76514 

(Nov. 24, 2015), 80 FR 75388, 75413 (Dec. 1, 2015) 

(‘‘BSTP and SS&C Order’’). In the T+2 Adopting 

Release, the Commission also referred to these 

entities as ‘‘matching and electronic trade 

confirmation service providers.’’ T+2 Adopting 

Release, supra note 10, at 15566. 

33T+2 Adopting Release, supra note 10, at 15582. 

34 Id. at 15582–83. 

35T+2 Proposing Release, supra note 30, at 

69243–46. 

36As in the T+2 Proposing Release, the 

distinction between ‘‘retail investor’’ and 

‘‘institutional investor’’ is made only for the 

purpose of illustrating the manner in which these 

types of entities generally clear and settle their 

securities transactions. 

37T+2 Proposing Release, supra note 30, at 69243. 

The BCG Study further concluded that 

moving to a T+1 settlement cycle would 

require new infrastructure to enable 

near real-time trade processing and 

would also require transforming the 

securities lending and foreign buyer 

processes.24

In 2014, DTCC, ICI, SIFMA, and other 

market participants formed an Industry 

Steering Group (‘‘ISG’’) to facilitate a 

transition to T+2.25 The ISG and 

PricewaterhouseCoopers LLP published 

a white paper describing certain 

‘‘industry-level requirements’’ and ‘‘subrequirements’’ that the ISG believed 

would be required for a successful 

migration to a T+2 settlement cycle.26 In 

conjunction with the ISG, Deloitte 

published in December 2015 a ‘‘T+2 

Playbook’’ setting forth the requested 

implementation timeline with 

milestones and dependencies, as well as 

detailing ‘‘remedial activities’’ that 

impacted market participants should 

consider to prepare for migration to 

T+2.27 The ISG White Paper also 

included an implementation timeline 

that targeted the transition for the end 

of the third quarter of 2017. 

In 2015, the Commission’s Investor 

Advisory Committee recommended that 

the Commission pursue T+1 (rather than 

T+2), noting that retail investors would 

significantly benefit from a T+1 

standard settlement cycle.28 In the event 

that the Commission determined to 

pursue a T+2 standard settlement cycle, 

the IAC recommended that the 

Commission work with industry 

participants to create a clear plan for 

moving to T+1 shortly thereafter.29

The Commission amended Rule 15c6– 

1 in 2017 to shorten the standard 

settlement cycle from T+3 to T+2 and 

set a compliance date for September 

2017.30 The Commission recognized 

that the clearance and settlement 

process for securities transactions 

encompassed by the rule involved a 

number of market participants and 

entities whose functions and 

capabilities would be impacted 

significantly by a change in the standard 

settlement cycle, and the Commission 

considered these in its analysis 

supporting the move to T+2. Among 

these entities were the NSCC and the 

DTC, which respectively operate the 

central counterparty (‘‘CCP’’) and 

central securities depository (‘‘CSD’’) for 

transactions in U.S. equity securities,31

three CMSPs,32 and the diverse 

population of market participants that 

depend on the clearance and settlement 

services provided by NSCC, DTC, and 

the CMSPs. These market participants 

include but are not limited to, retail and 

institutional investors, registered 

investment advisers, broker-dealers, 

exchanges, alternative trading systems, 

service providers, and custodian banks. 

In the T+2 Adopting Release, the 

Commission explained that a T+1 

standard settlement cycle could produce 

greater reductions in market, credit, and 

liquidity risk for market participants 

than a move to T+2, but that shortening 

beyond T+2 would require significantly 

larger investments in new systems and 

processes.33 In an effort to analyze, 

among other things, the impacts of 

further shortening beyond T+2, the 

Commission directed Commission staff 

to study the issue.34 As a result of the 

staff’s study and analysis of the 

settlement cycle, the Commission 

believes that, among other things, 

improvements to institutional trade 

processing are critical to promoting the 

operational efficiency necessary to 

facilitate a standard settlement cycle 

shorter than T+2, as discussed further in 

Part III.B below. 

B. Current State of Post-Trade 

Processing 

In the T+2 Proposing Release, the 

Commission provided a detailed 

overview of post-trade processing for 

transactions in equity securities, 

including the roles of the CCP, the CSD, 

and CMSPs.35 The Commission also 

provided a summary of the affected 

market participants—investors, brokerdealers, prime broker-dealers (‘‘prime 

brokers’’), and custodian banks—and 

described at a high level the different 

paths to settlement available depending 

on whether a transaction involves a 

retail or institutional investor.36 While 

this overview remains an accurate 

summary of the post-trade process, the 

Commission recognizes that shortening 

the standard settlement cycle beyond 

T+2 will require particular focus on 

improving institutional trade 

processing. 

To provide context for understanding 

the Commission’s rule proposals and 

the related economic analysis that 

follows in this release, the Commission 

provides below an overview of the 

current state of post-trade processing, 

including a brief summary of trade 

flows relevant to the processing of 

institutional trades. As a general matter, 

investors often rely on securities 

intermediaries to facilitate the clearance 

and settlement of their securities 

transactions. These intermediaries 

include broker-dealers, which maintain 

a securities account on the investor’s 

behalf to facilitate purchases and sales 

of securities, and clearing agencies, 

which provide a range of services 

designed to facilitate the clearance and 

settlement of a securities transaction. As 

relevant to this release, a clearing 

agency may act as a CCP, a CSD, or a 

CMSP. The role of each of these entities 

is explained further below. 

1. Clearing Agencies—CCPs, CSDs, and 

CMSPs 

As explained more fully in the T+2 

Proposing Release,37 a CCP interposes 

itself between the counterparties to a 

trade following trade execution, 

becoming the buyer to each seller and 

seller to each buyer to ensure the 

performance of open contracts. One 

critical function of a CCP is to eliminate 

bilateral credit risk between individual 

buyers and sellers. NSCC is a registered 


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38As discussed further in the T+2 Proposing 

Release, NSCC also provides CCP services for other 

types of securities, including corporate bonds, 

municipal securities, and UITs. Id. 

39Commission rules require a covered clearing 

agency that provides CCP services to have policies 

and procedures reasonably designed to maintain 

financial resources that cover a wide range of 

foreseeable stress scenarios that include, but are not 

limited to, the default of the participant family that 

would potentially cause the largest aggregate credit 

exposure for the covered clearing agency in extreme 

but plausible market conditions. See 17 CFR 

240.17Ad–22(e)(4)(iii). 

40These functions are discussed in more detail in 

the T+2 Proposing Release. See T+2 Proposing 

Release, supra note 30, at 69243. Since publication 

of the T+2 Proposing Release, NSCC has amended 

its rules to provide a trade guarantee as soon as 

NSCC has validated the trade upon submission for 

clearing. 

41The operation of CNS is explained more fully 

in the T+2 Proposing Release. See id. at 69244. 

42The interaction between NSCC and DTC to 

achieve settlement is explained more fully in the 

T+2 Proposing Release. See id. at 69245. 

43 DTC’s role as CSD is discussed more fully in 

the T+2 Proposing Release. See id. at 69245–46. As 

of 2017, DTC retained custody of more than 1.3 

million active securities issues valued at $54.2 

trillion, including securities issued in the U.S. and 

131 other countries and territories. See DTCC, 

Businesses and Subsidiaries: The Depository Trust 

Company (DTC), https://www.dtcc.com/about/ 

businesses-and-subsidiaries/dtc. The corporate 

bond market accounted for another $30 billion and 

the municipal bond market saw over $10 billion on 

average traded every day in 2016. See SIFMA, T+2 

Fact Sheet, https://www.sifma.org/wp-content/ 

uploads/2017/09/Sep-8-T2-Update-Fact-Sheet.pdf. 

44The relevance of NSS to achieving money 

settlement in a T+0 environment is discussed in 

Part IV.B.3. 

45The role of the CMSP in facilitating settlement 

is discussed more fully in the T+2 Proposing 

Release. See T+2 Proposing Release, supra note 30, 

at 69246. 

46Specifically, the CMSP will send the affirmed 

confirmations to DTC where the DTC participants, 

who will deliver the securities, will authorize the 

trades for automated settlement. 

clearing agency that provides CCP 

services for transactions in U.S. equity 

securities to its members.38 NSCC 

facilitates the management of risk 

among its members using a number of 

tools, which include: (1) Novating and 

guaranteeing trades to assume the credit 

risk of the original counterparties; (2) 

collecting clearing fund contributions 

from members to help ensure that NSCC 

has sufficient financial resources in the 

event that one of the counterparties 

defaults on its obligations; 39 and (3) 

netting to reduce NSCC’s overall 

exposure to its counterparties.40

As discussed further in Part V.B.1, 

CCP netting reduces risk in the 

settlement process by reducing the 

overall number of obligations that must 

be settled. NSCC’s netting and 

accounting system is called the 

Continuous Net Settlement System 

(‘‘CNS’’). NSCC accepts trades into CNS 

for clearing from the nation’s exchanges 

and other trading venues, and it uses 

CNS to net each NSCC member’s trades 

in each security traded that day to a 

single position for each security, either 

long (i.e., the right to receive securities) 

or short (i.e., an obligation to deliver 

securities). Throughout the day, NSCC 

records cash debit and credit data 

generated by its members’ activities, and 

at the end of the processing day, NSCC 

nets the debits and credits to produce 

one aggregate cash debit or credit for 

each member.41

While NSCC provides final settlement 

instructions to its members each day, 

the payment for and transfer of 

securities ownership occurs at DTC, 

which serves as the CSD and settlement 

system for U.S. equity securities. At the 

conclusion of each trading day, an 

NSCC member’s short and long 

positions are compared against its 

corresponding DTC account to 

determine whether securities are 

available for settlement. If securities are 

available, they will be transferred to 

cover the NSCC member’s short 

positions. Specifically, on settlement 

date NSCC submits instructions to DTC 

to deliver (i.e., transfer) securities 

positions for each security netted 

through CNS to each NSCC member 

holding a long position in such 

securities. Cash obligations are settled 

through DTC by one net payment for 

each NSCC member at the end of the 

settlement day.42

As noted above, DTC is a CSD, which 

is an entity that holds securities for its 

participants either in certificated or 

uncertificated (i.e., immobilized or 

dematerialized) form so that ownership 

can be easily transferred through a book 

entry (rather than the transfer of 

physical certificates) and provides 

central safekeeping and other asset 

services. Additionally, a CSD may 

operate a securities settlement system, 

which is a set of arrangements that 

enables transfers of securities, either for 

payment or free of payment, and 

facilitates the payment process 

associated with such transfers. DTC 

serves as the CSD and settlement system 

for most U.S. equity securities, 

providing custody and book-entry 

services.43 In accordance with its rules, 

DTC accepts deposits of securities from 

its participants, credits those securities 

to the depositing participants’ accounts, 

and effects book-entry transfer of those 

securities. DTC substantially reduces 

the number of physical securities 

certificates transferred in the U.S. 

markets, which significantly improves 

operational efficiencies and reduces risk 

and costs associated with the processing 

of physical securities certificates. 

In addition to a securities account at 

DTC, each DTC participant has a 

settlement account at a clearing bank to 

record any net funds obligation for endof-day settlement. Debits and credits in 

the participant’s settlement account are 

netted intraday to calculate, at any time, 

a net debit balance or net credit balance, 

resulting in an end-of-day settlement 

obligation or right to receive payment. 

DTC nets debit and credit balances for 

participants who are also members of 

NSCC to reduce fund transfers for 

settlement, and acts as settlement agent 

for NSCC in this process. Settlement 

payments between DTC and DTC’s 

participants’ settlement banks are made 

through the National Settlement Service 

(‘‘NSS’’) of the Federal Reserve 

System.44

CMSPs electronically facilitate 

communication among a broker-dealer, 

an institutional investor or its 

investment adviser, and the institutional 

investor’s custodian to reach agreement 

on the details of a securities trade.45

These entities emerged as a result of 

efforts by market participants to develop 

a more efficient and automated 

matching process that continues to be 

viewed as a necessary step in achieving 

straight-through processing for the 

settlement of institutional trades. 

CMSPs provide the communication 

facilities to enable a broker-dealer and 

an institutional investor to send 

messages back and forth that results in 

the agreement of the trade details, 

generally referred to as an ‘‘affirmation’’ 

or ‘‘affirmed confirmation,’’ which is 

then sent to DTC to effect settlement of 

the trade.46 In general, the formatting 

and content of messages used to 

communicate confirmations and 

affirmations varies and may include use 

of, for example, SWIFT, FIX, ISITC, or 

other formats. The delivery method of 

such messages also may vary across 

market participants. The CMSP, by 

acting as a centralized hub, helps 

promote standardization and facilitate 

communication. 

In addition, a CMSP may offer a 

‘‘matching’’ process by which it 

compares and reconciles the brokerdealer’s trade details with the 

institutional investor’s trade details to 

determine whether the two descriptions 

of the trade agree, at which point it can 

generate an affirmation to effect 

settlement of the trade. As part of such 

process, the CMSP may offer services 

that can assist with the automated 

identification of trades that do not 

match, allowing market participants to 

identify errors and remediate any trade 

information that does not match. 


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47The requirements for membership or 

participation established by the clearing agencies 

are discussed more fully in the T+2 Proposing 

Release. See T+2 Proposing Release, supra note 30, 

at 69247. 

48 Institutional investors also include employeebenefit plans, foundations, endowments, insurance 

companies and registered investment companies 

(‘‘RICs’’) (of which mutual funds are one type), 

among other investor types. 

49See T+2 Proposing Release, supra note 30, at 

69247 (discussing the same). 50As previously discussed, if the broker-dealer is 

an introducing broker-dealer, the broker-dealer may 

use a clearing broker-dealer to facilitate clearance 

and settlement. See id. (discussing the same). 

51See infra Part III.B.1 (further discussing trade 

confirmations and distinguishing the requirements 

with respect to a confirmation under existing Rule 

10b–10 and a confirmation under proposed Rule 

15c6–2). 

2. Broker-Dealers 

Broker-dealers are securities 

intermediaries that, among other things, 

may hold accounts on behalf of 

investors to facilitate the purchase and 

sale of securities transactions. Brokerdealers that are direct members of 

clearing agencies are typically referred 

to as ‘‘clearing brokers.’’ Clearing 

brokers must comply with the rules of 

the clearing agency, including but not 

limited to rules for operational and 

financial requirements.47 Broker-dealers 

that submit transactions to a clearing 

agency through a clearing broker are 

typically referred to as ‘‘introducing 

brokers.’’ In general, broker-dealers 

executing trades on a registered 

securities exchange are required to clear 

those transactions through a registered 

clearing agency. Broker-dealers 

executing trades outside the auspices of 

a trading venue (e.g., on an internalized 

basis) may clear through a clearing 

agency or may choose to settle those 

trades through mechanisms internal to 

that broker-dealer. 

3. Retail and Institutional Investors 

As discussed in the T+2 Proposing 

Release, institutional investors are 

entities such as, but not limited to, 

pension funds, mutual funds, hedge 

funds, bank trust departments, and 

insurance companies.48 Transactions 

involving institutional investors are 

often more complex than those for and 

with retail investors due to the volume 

and size of the transactions, the entities 

involved in facilitating the execution 

and settlement of the trade, including 

CMSPs, bank custodians, or prime 

brokers, and the need to manage certain 

regulatory or business obligations.49 By 

contrast, the settlement of retail investor 

trades generally occurs directly with the 

investor’s broker-dealer,50 without 

relying on a separate custodian bank or 

prime broker. 

Institutional investors may choose to 

trade through an executing brokerdealer that clears and settles its 

securities transactions using NSCC and 

DTC. However, depending on the size 

and complexity of the trade and the 

number of trading partners involved in 

the transaction, institutional investors 

may also choose to avail themselves of 

processes specifically designed to 

address the unique aspects of their 

trades. Specifically, as described below, 

many institutional trades settle on an 

allocated trade-for-trade basis through a 

custodian bank. Many hedge funds 

settle their trades using prime brokers. 

Below are diagrams that illustrate at a 

high level the typical path to settlement 

for retail trades and institutional trades. 

(a) Retail Trades 

In general, individual retail investors 

rely on their broker-dealers to execute 

trades on their behalf as customers of 

their broker-dealers. As previously 

discussed, a broker-dealer may choose 

to internalize a customer’s order using 

its own inventory of securities. 

However, the broker-dealer may also 

take other steps, away from its 

customer, to deliver securities to its 

customer’s account. Depending on how 

the broker-dealer executes such trades 

away from its customer, these other 

trades may clear through a clearing 

agency or may settle bilaterally. 

Retail investors may engage in ‘‘selfdirected’’ trading. Figure 1 illustrates, at 

a high level, the activities that take 

place for a self-directed retail trade. In 

this scenario, when a retail investor 

places an order to trade with its 

counterparty, the counterparty— 

typically, the broker-dealer through 

which the retail investor holds its 

securities account—will execute the 

trade. The counterparty will issue a 

trade confirmation identifying certain 

trade details, such as the transaction 

type, the account information, the 

security and quantity of shares traded, 

the trade and settlement dates, and the 

net amount of money to be received or 

paid at settlement.51 The confirmation 

may also include other financial details, 

such as commissions, taxes, and fees. A 

retail investor generally would review 

the information provided in the 

confirmation and contact its brokerdealer to correct any errors. In the 

absence of errors, the broker-dealer can 

proceed with settlement processing. 

BILLING CODE 8011–01–P 


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52See supra Part II.B.1 (discussing the services 

provided by a CMSP); infra Part II.B.3.c) (discussing 

block trades). 

53Some institutional investors use broker-dealers 

to custody their securities, and in such cases their 

transactions will trade and settle as described in 

Figure 1. In this release, we have grouped such 

circumstances under the retail investor scenario 

because of the similar transaction flow. 

54An electronic copy of the execution details is 

sometimes referred to as a ‘‘notice of execution.’’ 

In some instances, self-directed retail 

trades and trades directed by an 

investment adviser are executed 

together as part of a block trade initiated 

by an investment adviser, which could 

also engage the use of a CMSP to 

communicate the allocations of the 

block trade to participating accounts.52

Further discussion of institutional 

trades and the use of block trades by 

institutional investors follows below. 

(b) Institutional Trades 

Institutional investors often engage a 

broker-dealer or another counterparty 

for trade execution, and separately, a 

bank custodian to provide custodial 

safekeeping and asset servicing for their 

investments.53 Because the counterparty 

and the custodian are different entities 

in this scenario, additional steps are 

necessary to complete the post-trade 

process, as identified by the black 

shapes in Figure 2. Specifically, the 

institutional investor or its investment 

adviser will need to instruct the bank 

custodian on the details of each 

transaction and authorize the bank 

custodian to settle the trade. The black 

shapes in Figure 2 also illustrate how 

the investor’s counterparty generally 

will provide the institutional investor or 

investment adviser with execution 

details prior to issuing a trade 

confirmation.54


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55See T+1 Report, supra note 18, at 5. 56Protocols are the rules that govern the exchange 

or transmission of data and may refer to the specific 

content and formatting of trade information (i.e., 

ISO15022, FIX, SWIFT or an Excel template), the 

method for delivery trade information (i.e., file 

transfer protocol (FTP), SSH file transfer protocol 

(SFTP), SWIFT, DTC ITP, email, etc.), or both. They 

may also refer to the frequency of transmission, 

deadlines for data delivery, and whether data is 

sent for individual trades or a group (or ‘‘batch’’) 

of trades. Some delivery mechanisms may offer a 

hub-and-spoke model for delivery, in which the 

sender delivers data to a central hub and the hub 

passes the data on to identified recipients. Other 

delivery mechanisms are bi-lateral, in which the 

sender and receiver have a direct communication 

with one another without transmission through a 

hub. 

57See T+1 Report, supra note 18, at 8–9. 

58Sean McEntee, Executive Director, ITP Product 

Management, DTCC, Remarks at the DTCC ITP 

Forum—Americas (June 17, 2021) (‘‘DTCC ITP 

Forum Remarks’’) (recording available at https://

www.dtcc.com/events/archives). 

Institutional investors, along with 

their broker-dealers and bank 

custodians, may rely on the services of 

a CMSP to transmit confirmations and 

affirmations or match the trade details 

to prepare a trade for settlement. 

Alternatively, they may use other 

standardized messaging protocols, such 

as FIX and SWIFT,55 to communicate 

trade information. Some market 

participants, however, still rely on 

manual processes to communicate trade 

information, such as through the use of 

fax machines or email, and may use 

Excel data files rather than standardized 

data protocols.56 Whichever the 

mechanism, achieving an affirmed 

confirmation by the end of trade date is 

considered a securities industry best 

practice.57 According to data from 

DTCC, however, only 68% of trades are 

affirmed on trade date.58 Figure 2 

illustrates a scenario where the 

institutional investor does not rely on a 

CMSP to complete the confirmation/ 

affirmation process. 

For some institutional investors, such 

as hedge funds, a prime broker may act 

as both the counterparty to the trade and 

the custodian of the securities. In this 

scenario, the institutional investor or its 

investment adviser provides trade 

details to the prime broker, and the 

prime broker will affirm the transaction 

to facilitate settlement. As a brokerdealer, the prime broker may also use 

NSCC to clear the transaction. 

Generally, the Commission understands 

that the prime broker will ‘‘disaffirm’’ a 

transaction if the institutional investor 

does not make margin payments 

required of the investor by the prime 

broker. 

(c) Use of Block Trades 

Investment advisers commonly trade 

in ‘‘blocks’’ to manage the accounts of 

their institutional clients. In such a 

scenario, investment advisers aggregate 

the orders of multiple clients into a 

block for trade execution. After trade 

execution of the block order by the 

broker-dealer, the investment adviser 


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59 DTCC, Modernizing the U.S. Equity Markets 

Post-Trade Infrastructure (Jan. 2018) (‘‘DTCC 

Modernizing Paper’’), https://www.dtcc.com/∼/ 

media/Files/downloads/Thought-leadership/ 

modernizing-the-u-s-equity-markets-post-tradeinfrastructure.pdf. These initiatives are relevant to 

the discussion of T+0 building blocks related to 

netting and batch processing, as discussed in Part 

IV.B.1 and Part IV.B.2. 

60See, e.g., Exchange Act Release No. 87022 

(Sept. 19, 2019), 84 FR 50541 (Sept. 25, 2019) (order 

amending NSCC’s settlement guide to implement a 

new algorithm for night cycle transactions); 

Exchange Act Release No. 87756 (Dec. 16, 2019), 84 

FR 70256 (Dec. 20, 2019) (order extending the 

implementation timeframe for the new algorithm 

for transactions processed in the night cycle); 

Exchange Act Release No. 87023 (Sept. 19, 2019), 

84 FR 50532 (Sept. 25, 2019) (order amending the 

CNS Accounting Operation of NSCC’s Rules & 

Procedures with respect to receipt of securities from 

NSCC’s CNS System). 

61According to DTCC, on March 12, 2020, NSCC 

processed over 363 million market-side transactions 

in equity securities, topping by 15% its prior peak 

set in October 2008 during the financial crisis. On 

an average day, NSCC processes approximately 106 

million market-side transactions. DTCC, Advancing 

Together: Leading the Industry to Accelerated 

Settlement, at 4 (Feb. 2021) (‘‘DTCC White Paper’’), 

https://www.dtcc.com/-/media/Files/PDFs/ 

White%20Paper/DTCC-Accelerated-Settle-WP2021.pdf. 

will allocate securities within the block 

to the accounts of its clients 

participating in the block, as reflected in 

Figure 3. These allocation instructions 

are communicated to the broker-dealer 

so that the broker-dealer can generate a 

confirmation of the trade details for 

each account for the investment adviser 

to affirm. 

BILLING CODE 8011–01–C 

C. Recent Initiatives and Market Events 

Efforts to facilitate a settlement cycle 

shorter than T+2 began soon after the 

transition to a T+2 standard settlement 

cycle had been completed. For example, 

DTCC announced two initiatives in 

January 2018 to achieve additional 

operational and capital efficiencies, 

dubbed ‘‘Accelerating Time to 

Settlement’’ and ‘‘Settlement 

Optimization.’’ 59 Among other things, 

the DTCC-owned clearing agencies have 

been exploring steps to modify their 

settlement process to be more efficient, 

such as by introducing new algorithms 

to position more transactions for 

settlement during the ‘‘night cycle’’ 

process (which currently begins in the 

evening of T+1) to reduce the need for 

activity on the day of settlement. 

Portions of these two initiatives have 

been submitted to the Commission and 

approved as proposed rule changes.60

More recently, periods of increased 

market volatility—first in March 2020 

following the outbreak of the COVID–19 

pandemic, and again in January 2021 

following heightened interest in certain 

‘‘meme’’ stocks—highlighted the 

significance of the settlement cycle to 

the calculation of financial exposures 

and exposed potential risks to the 

stability of the U.S. securities market.61


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62 Id. at 2. The DTCC White Paper notes that 

centralized multilateral netting reduces the value of 

payments that need to be exchanged each day by 

an average of 98%, and netting is particularly 

important during times of heightened volatility and 

volume. 

63 Id. at 5, 8. 

64 Id. at 5. 

65See supra note 12 and accompanying text 

(making the same distinction); infra Part IV 

(discussing three potential models for T+0 

settlement, and soliciting comment on these 

models). 

66See, e.g., DTCC, Same-Day Settlement (SDS), 

https://www.dtcc.com/sds. 

67 DTCC White Paper, supra note 61, at 7. 

68 Id. 

69See Press Release, DTCC, DTCC Proposes 

Approach to Shortening U.S. Settlement Cycle to 

T+1 Within 2 Years (Feb. 24, 2021), https://

www.dtcc.com/news/2021/february/24/dtccproposes-approach-to-shortening-us-settlementcycle-to-t1-within-two-years. 

70 IWG participation consisted of over 800 subject 

matter advisors representing over 160 firms from 

buy- and sell-side firms, custodians, vendors, and 

clearinghouses. T+1 Report, supra note 18, at 4. 

71 Id. 

72See Press Release, DTCC, SIFMA, ICI and DTCC 

Leading Effort to Shorten U.S. Securities Settlement 

Cycle to T+1, Collaborating with the Industry on 

Next Steps (Apr. 28, 2021), https://www.dtcc.com/ 

news/2021/april/28/sifma-ici-and-dtcc-leadingeffort-to-shorten-us-securities-settlement-cycle-to-t1. 

73See T+1 Report, supra note 18. 

74 Id. 75 Id. at 10. 76 Id. 77 Id. 78 Id. 79 Id. at 11. 80See infra Part III.A.1. 81See infra Part III.A.3. 

Specifically, these two events have 

expanded a public debate over the 

length of the settlement cycle, and 

whether a shorter settlement cycle could 

have reduced the impact of the market 

volatility on investors by, among other 

things, reducing the length of time over 

which a broker-dealer member of NSCC 

is required to provide margin deposits 

with respect to a given transaction, 

thereby also potentially reducing the 

size of the deposits required per 

portfolio to manage the increased 

volatility. 

In February 2021, DTCC published 

the DTCC White Paper stating that 

accelerating settlement beyond T+2 may 

bring significant benefits to market 

participants but requires careful 

consideration and a balanced approach 

so that settlement can be achieved as 

close to the trade as possible without 

creating capital inefficiencies or 

introducing new, unintended 

consequences—such as inadvertently 

reducing or eliminating the benefits and 

cost savings provided by multilateral 

netting.62 DTCC suggested that 

shortening the settlement cycle to T+1 

could occur in the second half of 2023, 

and it estimated that a T+1 settlement 

cycle could reduce the volatility 

component of NSCC margin 

requirements by up to 41%.63 DTCC 

also contended that achieving T+1 

could be largely supported by using 

existing systems and available tools and 

procedures.64 With respect to a T+0 

settlement cycle, DTCC distinguished 

between netted T+0 settlement and realtime gross settlement,65 noting that in a 

netted settlement environment, trades 

would be netted either during the day 

or prior to settlement at the end of the 

day; with real-time gross settlement, 

trades would be settled instantaneously 

without netting. Currently, the DTCC 

clearing agencies can facilitate 

settlement on either T+1 or T+0 

pursuant to their rules and procedures 

for accelerated settlement.66 The DTCC 

White Paper explained that DTCC’s 

participants believe ‘‘the hurdles to T+0 

settlement,’’ especially real-time gross 

settlement, are ‘‘too great at this 

time.’’ 67 Furthermore, DTCC noted that 

real-time gross settlement could require 

trades to be funded on a trade-for-trade 

basis, eliminating the liquidity and riskreduction benefits of existing CCP 

netting processes.68 Additionally, DTCC 

indicated that over the past year it has 

been working collaboratively with a 

cross-section of market participants to 

build support for further shortening of 

the settlement cycle, and has outlined a 

plan to increase these efforts to forge a 

consensus on setting a firm date and 

approach to achieving a transition to 

T+1.69

Following publication of the DTCC 

White Paper, the securities industry 

formed an Industry Steering Committee 

(‘‘ISC’’) and an Industry Working Group 

(‘‘IWG’’) 70 with the intent of developing 

industry consensus for an accelerated 

settlement cycle transition, including to 

understand the impacts, evaluate the 

potential risks, and develop an 

implementation approach. To support 

this effort, the ISC engaged Deloitte to 

facilitate the IWG’s analysis of the 

benefits and barriers to moving to T+1, 

and coordinate with the industry on 

recommending solutions for the 

transition.71 In April 2021, DTCC, ICI, 

and SIFMA issued a joint press release 

to announce their collaboration ‘‘on 

efforts to accelerate the U.S. securities 

settlement cycle from T+2 to T+1.’’ 72

As stated above, on December 1, 2021, 

DTCC, SIFMA and ICI, together with 

Deloitte, published the T+1 Report, 

which outlined the ISC’s 

recommendations for achieving a T+1 

standard settlement cycle, and proposed 

transitioning to T+1 settlement by the 

second quarter of 2024.73 These 

recommendations focused on the 

following topics: Allocation and 

confirmation of institutional trades, 

trade documentation, global settlement 

and FX markets, corporate actions, 

prime brokerage services, securities 

lending, settlement errors and fails, 

creation and redemption of exchange 

traded funds (‘‘ETFs’’), equity and debt 

offerings, and regulatory 

requirements.74

In addition to presenting the ISC’s 

recommendations regarding the 

requirements for moving to T+1, the 

T+1 Report stated that the IWG also 

considered the impacts and benefits of 

moving to T+0 settlement.75 The ISC 

and IWG concluded, by consensus, that 

T+0 is not achievable in the short term 

given the current state of the settlement 

ecosystem.76 The T+1 Report stated that 

a move towards a shortening of the 

settlement cycle to T+0 would require 

an overall modernization of current-day 

clearance and settlement infrastructure, 

changes to business models, revisions to 

industry-wide regulatory frameworks, 

and the potential implementation of 

real-time currency movements to 

facilitate such a change.77 Additionally, 

the IWG indicated that ‘‘adoption of 

such technologies would 

disproportionately fall on small and 

medium-sized firms that rely on manual 

processing or legacy systems and may 

lack the resources to modernize their 

infrastructure rapidly.’’ 78 The T+1 

Report also described several ‘‘key 

areas’’ that the IWG concluded would be 

significantly impacted by a move to T+0 

settlement. These areas included: Reengineering of securities processing; 

securities netting; funding requirements 

for securities transactions; securities 

lending practices; prime brokerage 

practices; global settlement; and 

primary offerings, derivatives markets 

and corporate actions.79 The 

Commission is assessing these 

challenges, and in Part IV, includes 

further discussion of them in requesting 

comment on considerations related to 

T+0 settlement. 

III. Proposals for T+1 

The Commission is proposing the 

following rules to implement a T+1 

standard settlement cycle. First, the 

Commission proposes to amend Rule 

15c6–1 to establish a standard 

settlement cycle of T+1 for most brokerdealer transactions.80 In so doing, the 

Commission also proposes to repeal 

Rule 15c6–1(c), which currently 

establishes a T+4 standard settlement 

cycle for certain firm commitment 

offerings.81 Second, the Commission 

proposes three additional rules 

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82 17 CFR 240.15c6–1(a). 

83 15 U.S.C. 78c(a)(10). Title VII of the DoddFrank Wall Street Reform and Consumer Protection 

Act, Public Law 111–203, 124 Stat. 1376 (2010), 

amended, among other things, the definition of 

‘‘security’’ under the Exchange Act to encompass 

security-based swaps. The Commission in July 2011 

granted temporary exemptive relief from 

compliance with certain provisions of the Exchange 

Act, including Rule 15c6–1, in connection with the 

revision of the Exchange Act definition of 

‘‘security’’ to encompass security-based swaps. See 

Order Granting Temporary Exemptions Under the 

Securities Exchange Act of 1934 In Connection 

With the Pending Revision of the Definition of 

‘‘Security’’ To Encompass Security-Based Swaps, 

Exchange Act Release No. 64795 (July 1, 2011), 76 

FR 39927, 39938–39 (July 7, 2011). This temporary 

exemptive relief expired on February 5, 2020. See 

Order Granting a Limited Exemption from the 

Exchange Act Definition of ‘‘Penny Stock’’ for 

Security-Based Swap Transactions between Eligible 

Contract Participants; Granting a Limited 

Exemption from the Exchange Act Definition of 

‘‘Municipal Securities’’ for Security-Based Swaps; 

and Extending Certain Temporary Exemptions 

under the Exchange Act in Connection with the 

Revision of the Definition of ‘‘Security’’ to 

Encompass Security-Based Swaps, Exchange Act 

Release No. 84991 (Jan. 25, 2019), 84 FR 863 (Jan. 

31, 2019) (extending the expiration date for the 

relevant portion of the temporary exemptive relief 

to February 5, 2020); Order Extending Temporary 

Exemptions from Exchange Act Section 8 and 

Exchange Act Rules 8c–1, 10b–16, 15a–1, 15c2–1 

and 15c2–5 in Connection with the Revision of the 

Definition of ‘‘Security’’ to Encompass SecurityBased Swaps, Exchange Act Release No. 87943 (Jan. 

10, 2020), 85 FR 2763 (Jan. 16, 2020) (allowing the 

relevant portion of the temporary exemptive relief 

to expire on February 5, 2020). 

84The Commission applied Rule 15c6–1 to 

broker-dealer contracts for the purchase and sale of 

securities issued by investment companies, 

including mutual funds, because the Commission 

recognized that these securities represented a 

significant and growing percentage of broker-dealer 

transactions. See T+3 Adopting Release, supra note 

9, at 52900. 

85With regard to limited partnership interests, the 

Commission excluded non-listed limited 

partnerships due to complexities related to 

processing the trades in these securities and the 

lack of an active secondary market. In contrast, the 

Commission included listed limited partnerships 

primarily to ensure exclusion of these securities 

would not unnecessarily contribute to the 

bifurcation of the settlement cycle for listed 

securities generally. See id. at 52899. 

86 17 CFR 240.15c6–1(a). 

87T+3 Adopting Release, supra note 9, at 52902. 

In the T+2 Proposing Release, the Commission 

stated its preliminary belief that the use of this 

provision should continue to be applied in limited 

cases to ensure that the settlement cycle set by Rule 

15c6–1(a) remains a standard settlement cycle. T+2 

Proposing Release, supra note 30, at 69257 n.153. 

88To date, the Commission has not identified 

instances indicating a risk of overuse of this 

provision. 

89 17 CFR 240.15c6–1(b). In recognition of the fact 

that the Commission may not have identified all 

situations or types of trades where T+2 settlement 

would be problematic, Rule 15c6–1(b) provides that 

the Commission may exempt by order additional 

types of trades from T+2 settlement, either 

unconditionally or on specified terms and 

conditions, if the Commission determines that such 

an exemption is consistent with the public interest 

and the protection of investors. Id. 

90See Exchange Act Release No. 35750 (May 22, 

1995), 60 FR 27994, 27995 (May 26, 1995) (granting 

an exemption from Rule 15c6–1 for certain 

transactions in foreign securities). The exemption 

also provides that if less than 10% of the annual 

trading volume in a security that has U.S. transfer 

or deliver facilities occurs in the U.S., the 

transaction in such security will be exempt from the 

requirements in the rule. 

91 Id. 

92 Id. at n.7. 

dealers, investment advisers, and 

CMSPs to improve the efficiency of 

managing the processing of institutional 

trades under the shortened timeframes 

that would be available in a T+1 

environment. Specifically, the 

Commission proposes new Rule 15c6–2 

to prohibit broker-dealers who have 

agreed with a customer to engage in an 

allocation, confirmation or affirmation 

process from effecting or entering into a 

contract for the purchase or sale of a 

security on behalf of that customer 

unless the broker-dealer has also 

entered into a written agreement that 

requires the allocation, confirmation, 

affirmation to be completed as soon as 

technologically practicable and no later 

than the end of the day on trade date in 

order to complete settlement in the 

timeframes required under Rule 15c6– 

1(a). The Commission also proposes to 

amend the recordkeeping obligations of 

investment advisers to ensure that they 

are properly documenting their related 

allocations and affirmations, as well as 

retaining the confirmations they receive 

from their broker-dealers. Finally, the 

Commission proposes a requirement for 

CMSPs to establish, implement, 

maintain, and enforce written policies 

and procedures designed to facilitate 

straight-through processing. Each 

proposal is discussed further below. 

In addition, the Commission also 

discusses the anticipated impact of T+1 

on other Commission rules and existing 

Commission guidance on Regulation 

SHO, the financial responsibility rules 

for broker-dealers under the Exchange 

Act, Rule 10b–10, prospectus delivery, 

and rules and operations of selfregulatory organizations (‘‘SROs’’). 

Finally, the Commission proposes to 

require compliance with each of the 

above rule proposals, if adopted, by 

March 31, 2024. The Commission is 

soliciting comment on all aspects of the 

proposals, and in each section below 

also solicits comment on specific 

aspects of the proposed rules and rule 

amendments, the anticipated impact on 

the other Commission rules noted 

above, and the proposed compliance 

date. 

A. Shortening the Length of the 

Standard Settlement Cycle 

Existing Rule 15c6–1(a) under the 

Exchange Act provides that, unless 

otherwise expressly agreed by the 

parties at the time of the transaction, a 

broker-dealer is prohibited from 

entering into a contract for the purchase 

or sale of a security (other than an 

exempted security, government security, 

municipal security, commercial paper, 

bankers’ acceptances, or commercial 

bills) that provides for payment of funds 

and delivery of securities later than the 

second business day after the date of the 

contract.82 Rule 15c6–1(a) covers 

contracts for the purchase or sale of all 

types of securities except for the 

excluded securities enumerated in 

paragraph (a)(1) of the rule. The 

definition of the term ‘‘security’’ in 

Section 3(a)(10) of the Exchange Act 

covers, among others, equities, 

corporate bonds, UITs, mutual funds, 

ETFs, ADRs, security-based swaps, and 

options.83 Application of Rule 15c6–1(a) 

extends to the purchase and sale of 

securities issued by investment 

companies (including mutual funds),84

private-label mortgage-backed 

securities, and limited partnership 

interests that are listed on an 

exchange.85

Rule 15c6–1(a) allows the parties to 

the trade to agree that settlement will 

take place later than two business days 

after the trade date, provided that such 

an agreement is express and reached at 

the time of the transaction.86 This 

provision is sometimes referred to as the 

‘‘override provision.’’ When the 

Commission first adopted Rule 15c6– 

1(a), it stated that use of the override 

provision ‘‘was intended to apply only 

to unusual transactions, such as seller’s 

option trades that typically settle as 

many as sixty days after execution as 

specified by the parties to the trade at 

execution.’’ 87 The override provision in 

15c6–1(a) continues to be intended to 

apply only to these unusual 

transactions.88

Rule 15c6–1(b) provides an exclusion 

for contracts involving the purchase or 

sale of limited partnership interests that 

are not listed on an exchange or for 

which quotations are not disseminated 

through an automated quotation system 

of a registered securities association.89

Pursuant to Rule 15c6–1(b), the 

Commission has granted an exemption 

from Rule 15c6–1 for securities that do 

not have facilities for transfer or 

delivery in the U.S.90 However, if the 

parties execute a transaction on a 

registered securities exchange, the 

transaction will be subject to both the 

rules of the exchange and Rule 15c6– 

1.91 Under the exemption, an ADR is 

considered a separate security from the 

underlying security.92 Thus, if there are 

no transfer facilities in the U.S. for a 

foreign security but there are transfer 

facilities for an ADR based on such 


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93 Id. 

94 15 U.S.C. 80a–2(a)(17). 

95 15 U.S.C. 80a–2(a)(37). 

96See Exchange Act Release No. 35815 (June 6, 

1995), 60 FR 30906, 30907 (June 12, 1995) (granting 

an exemption from Rule 15c6–1 for transactions 

involving certain insurance contracts). The 

Commission determined not to rescind or modify 

the exemptive order when it shortened the 

settlement cycle from T+3 to T+2. See T+2 

Adopting Release, supra note 10, at 15581. 

97 17 CFR 240.15c6–1(c). 

98 17 CFR 240.15c6–1(d). 

99 17 CFR 240.15c6–1(a). 

100See supra note 88. 

101See T+2 Adopting Release, supra note 10, at 

15598–99. 

102See id. at 15572. 

103See supra notes 73–74 and accompanying text 

(discussing the recommendations in the T+1 

Report). 

104See infra Part V (analyzing the economic 

effects of shortening the standard settlement cycle 

to T+1). 

105See T+2 Adopting Release, supra note 10, at 

15569–75. 

106Credit risk refers to the potential for the 

market participant’s counterparty to a given 

transaction to default on the transaction and 

therefore the market participant will not receive 

either the cash or securities necessary to settle the 

transaction. 

107Market risk refers to the potential for the value 

of the security that underlies the transaction to 

change between trade execution and settlement. 

108Liquidity risk refers to the risk that the market 

participant will be unable to timely settle a 

transaction because it does not have access to 

sufficient cash or securities. The market participant 

may not have access to sufficient cash or securities 

for a given transaction if, for example, it has 

recently been exposed to the default of a 

counterparty on a separate transaction and did not 

receive the anticipated proceeds of that transaction. 

foreign security, only the foreign 

security will be exempt from Rule 15c6– 

1.93 The Commission has also granted a 

separate exemption for contracts for the 

purchase or sale of any security issued 

by an insurance company (as defined in 

Section 2(a)(17) of the Investment 

Company Act 94) that is funded by or 

participates in a ‘‘separate account’’ (as 

defined in Section 2(a)(37) of the 

Investment Company Act 95), including 

a variable annuity contract or a variable 

life insurance contract, or any other 

insurance contract registered as a 

security under the Securities Act of 

1933 (‘‘Securities Act’’).96

Rule 15c6–1(c) establishes a T+4 

settlement cycle for firm commitment 

underwritings for securities that are 

priced after 4:30 p.m. Eastern Time 

(‘‘ET’’).97 Specifically, the rule states 

that the standard settlement cycle set 

forth in Rule15c6–1(a) does not apply to 

contracts for the sale of securities that 

are priced after 4:30 p.m. ET on the date 

that such securities are priced and that 

are sold by an issuer to an underwriter 

pursuant to a firm commitment offering 

registered under the Securities Act or 

sold to an initial purchaser by a brokerdealer participating in such offering. 

Under the rule, the broker or dealer 

must effect or enter into a contract for 

the purchase or sale of those securities 

that provides for payment of funds and 

delivery of securities no later than the 

fourth business day after the date of the 

contract unless otherwise expressly 

agreed to by the parties at the time of 

the transaction. 

Rule 15c6–1(d) provides that, for 

purposes of paragraphs (a) and (c) of the 

rule, parties to a contract shall be 

deemed to have expressly agreed to an 

alternate date for payment of funds and 

delivery of securities at the time of the 

transaction for a contract for the sale for 

cash of securities pursuant to a firm 

commitment offering if the managing 

underwriter and the issuer have agreed 

to such date for all securities sold 

pursuant to such offering and the parties 

to the contract have not expressly 

agreed to another date for payment of 

funds and delivery of securities at the 

time of the transaction.98

1. Proposed Amendment to Rule 15c6– 

1(a) 

The Commission proposes to amend 

Rule 15c6–1(a) to prohibit a brokerdealer from effecting or entering into a 

contract for the purchase or sale of a 

security (other than an exempted 

security, a government security, a 

municipal security, commercial paper, 

bankers’ acceptances, or commercial 

bills) that provides for payment of funds 

and delivery of securities later than the 

first business day after the date of the 

contract unless otherwise expressly 

agreed to by the parties at the time of 

the transaction.99 The Commission’s 

proposal to amend Rule 15c6–1(a) 

would change only the standard 

settlement date for securities 

transactions covered by the existing 

rule, and would not impact the existing 

exclusions enumerated in the rule. In 

addition, the Commission’s proposal 

would retain the so-called ‘‘override 

provision,’’ and the Commission 

continues to intend for the ‘‘override 

provision’’ to apply only to unusual 

cases to ensure that the settlement cycle 

set by Rule 15c6–1(a) is in fact the 

standard settlement cycle.100

2. Basis for Shortening the Standard 

Settlement Cycle to T+1 

First, the Commission preliminarily 

believes that market participants have 

made substantial progress toward 

identifying the technological and 

operational changes that would be 

necessary to establish a T+1 standard 

settlement cycle, and significant 

industry support for such a move has 

emerged. By contrast, at the time the 

Commission proposed to shorten the 

standard settlement cycle to T+2, 

market participants generally supported 

moving to T+2 and many believed that 

moving to T+1 would be substantially 

more costly and take longer to achieve 

than moving to T+2.101 At that time, 

neither the Commission nor the 

industry supported moving to a T+1 

standard settlement cycle.102 Since 

then, Commission staff has continued to 

study the potential impact of further 

shortening the settlement cycle, and the 

ISC has recommended that the 

securities industry implement a T+1 

standard settlement cycle.103

The Commission acknowledges that a 

transition from a T+2 to T+1 standard 

settlement cycle, and implementation of 

the necessary operational, technical, 

and business changes, will likely result 

in varying burdens, costs and benefits 

for a wide range of market 

participants.104 The Commission has 

remained mindful and observant of 

industry initiatives and progress 

targeted at facilitating an environment 

where a shortened standard settlement 

cycle could be achieved in a manner 

that reduces risk for market participants 

while also minimizing the likelihood of 

disruptive burdens and costs. Having 

taken current industry initiatives and 

their relative progress into 

consideration, the Commission 

preliminarily believes there has been 

collective progress by market 

participants sufficient to facilitate a 

transition to a T+1. 

Furthermore, when the Commission 

adopted a T+2 standard settlement 

cycle, it identified a number of 

incremental improvements to the 

functioning of the U.S. securities market 

likely to result relative to a T+3 

standard settlement cycle.105 The 

Commission preliminarily believes that 

a T+1 settlement cycle would produce 

similar incremental improvements to 

the functioning of the U.S. securities 

market relative to a T+2 settlement 

cycle. These benefits, discussed further 

in Part V.C.1, are summarized briefly 

here. 

First, as a general matter, time to 

settlement determines a significant 

portion of a market participant’s risk 

exposure on a given securities 

transaction. As a result, all else being 

equal, shortening the time to settlement 

reduces exposure to credit,106

market,107 and liquidity risk.108 In 

addition, assuming that trading volume 

remains constant, shortening the time to 

settlement also decreases the total 

number of unsettled trades that exists at 

any point in time, as well as the total 


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109 In other words, a T+2 settlement cycle results 

in two days of unsettled transactions at any given 

time, whereas a T+1 settlement cycle would result 

in one day of unsettled transactions at any given 

time. 

110For example, if the open position is net long, 

to close the position the CCP would obtain 

replacement securities in the market, possibly at a 

higher price than the original transaction. 

Conversely, if the open position is net short, to 

close the position the CCP would sell the defaulting 

participant’s securities in the market, possibly at a 

lower price than the original transaction. 

111The costs associated with deploying such 

resources are ultimately borne by the CCP members, 

both in the ordinary course of the CCP’s daily risk 

management process and in the event of an 

extraordinary event where members may be subject 

to additional liquidity assessments. These costs 

may be passed on through the CCP members to 

broker-dealers and investors. 

112See T+2 Proposing Release, supra note 30, at 

69251 n.77 (discussing mutual fund settlement 

timeframes and related liquidity risk, which may be 

exacerbated during times of stress). The 

Commission preliminarily believes that shortening 

settlement timeframes for portfolio securities to T+1 

will generally assist in reducing liquidity and other 

risks for funds that must satisfy investor 

redemption requests that settle pursuant to shorter 

settlement timeframes (e.g., T+1). 113See id. at 69251. 114As the Commission noted when it adopted 

Rule 15c6–1, reducing the total volume and value 

of outstanding obligations in the settlement 

pipeline at any point in time will better insulate the 

financial sector from the potential systemic 

consequences of serious market disruptions. See 

T+3 Adopting Release, supra note 9, at 52894. 

115T+2 Proposing Release, supra note 30, at 

69258 n.160 (citing Exchange Act Release No. 

68080 (Oct. 22, 2012), 77 FR 66220, 66254 (Nov. 2, 

2012) (‘‘Clearing Agency Standards Adopting 

Release’’) and DTCC, Understanding 

Interconnectedness Risks—To Build a More 

Resilient Financial System (Oct. 2015), http://

www.dtcc.com/news/2015/october/12/ 

understanding-interconnectedness-risks-article). 

116For a discussion regarding procyclicality, see 

T+2 Proposing Release, supra note 30, at 69250–52. 

117See T+3 Adopting Release, supra note 9, at 

52894. 

118See Standards for Covered Clearing Agencies, 

Exchange Act Release No. 71699 (Mar. 12, 2014), 79 

FR 16865 (Mar. 26, 2014), corrected at 79 FR 29507, 

29598 (May 22, 2014) (‘‘CCA Standards Proposing 

Release’’). Clearing members are often members of 

larger financial networks, and the ability of a 

covered clearing agency to meet payment 

obligations to its members can directly affect its 

members’ ability to meet payment obligations 

outside of the cleared market. Thus, management of 

liquidity risk may mitigate the risk of contagion 

between asset markets. 

119See infra Part V.C.2 (noting that market 

participants will have a choice between bearing an 

additional day of currency risk or incurring the cost 

related to hedging away this risk in the forward or 

futures market). 

120See infra Part III.B (proposing new Rule 15c6– 

2 to increase same-day affirmations); Part V.C.1 

(noting that the proposed rule can facilitate an 

orderly transition to T+1). 

market value of all unsettled trades.109

This reduction in the number and total 

value of unsettled trades should 

correspond to a reduction in a market 

participant’s overall exposure to risk 

arising from unsettled transactions. 

Second, the above dynamics produce 

noticeable effects for transactions that 

are centrally cleared because they 

reduce the CCP’s exposure to credit, 

market, and liquidity risk arising from 

its obligations to its participants, 

promoting the stability of the CCP and 

thereby reducing the potential for 

systemic risk to transmit through the 

financial system. For example, when the 

CCP faces a participant default, the CCP 

will liquidate open positions of the 

defaulting participant and use the 

defaulting participant’s financial 

resources held by the CCP to cover the 

CCP’s losses and expenses. The CCP 

may face losses if the market value of 

the defaulting participant’s open 

positions has moved significantly in the 

time between trade execution and 

default.110 While the CCP works to close 

out the defaulting participant’s open 

positions, it also needs to continue to 

meet its end-of-day settlement 

obligations to non-defaulting 

participants, and so the CCP is exposed 

to liquidity risk when a member 

defaults because it may need to use its 

own resources to complete end-of-day 

settlement.111 In each instance, the 

amount of risk to which the CCP is 

exposed is determined in part by the 

length of the settlement cycle, and 

shortening the settlement cycle would 

reduce the CCP’s overall exposure to 

these risks. 

Third, reducing these risks to the CCP 

would reduce the overall size of the 

financial resources that the CCP requires 

of its participants,112 thereby reducing 

the risks and costs faced by the CCP 

participants (i.e., broker-dealers) and, by 

extension, their customers (i.e., 

investors).113 CCP participants may 

choose to pass these reductions down to 

their customers. 

Fourth, the Commission anticipates 

that the above effects would reduce the 

potential for systemic risk.114 When the 

Commission proposed to shorten the 

standard settlement cycle from T+3 to 

T+2 it explained that its ‘‘views are even 

more apt today given the increasing 

interconnectivity and interdependencies 

among markets and market 

participants.’’ 115 In particular, in 

periods of market stress, liquidity 

demands imposed by the CCP on its 

participants, such as in the form of 

intraday margin calls, can have 

procyclical effects that reduce overall 

market liquidity.116 Reducing the CCP’s 

liquidity exposure by shortening the 

settlement cycle can help limit this 

potential for procyclicality,117

enhancing the ability of the CCP to serve 

as a source of stability and efficiency in 

the national clearance and settlement 

system.118

Finally, shortening the standard 

settlement cycle to T+1 would enable 

investors to access the proceeds of their 

securities transactions sooner than they 

are able to in the current T+2 

environment. In particular, in a T+1 

environment, sellers would have access 

to cash proceeds one day sooner and 

buyers would see purchased securities 

in their accounts one day earlier relative 

to a T+2 standard settlement cycle. 

In addition, as noted above, the 

Commission has evaluated the potential 

for shortening the settlement cycle to 

impose costs on market participants, 

which are likely to vary across market 

participants depending on a number of 

facts. These costs and considerations are 

discussed in Part V.C.2. The costs 

include those costs associated with 

investments in improved operations and 

new technologies to manage the 

compression of time resulting from a 

shorter settlement cycle. Shortening the 

settlement cycle may have other effects 

as well. For example, shortening the 

standard settlement cycle to T+1 for 

equity securities would disconnect 

settlement with foreign exchange (‘‘FX’’) 

transactions, which settle on a T+2 

basis. Mismatched settlement 

timeframes between equities and FX 

transactions may increase the cost 

needed to fund and hedge related 

securities transactions.119 In addition, 

the Commission recognizes that a 

disorderly transition to a shorter 

settlement cycle could lead to an 

increase in settlement fails. However, as 

discussed in Part V.B.4, in analyzing the 

shortening of the settlement cycle from 

T+3 to T+2, the Commission found no 

marked change in the volume of such 

failures. The Commission preliminarily 

believes that an orderly transition to a 

T+1 standard settlement cycle can limit 

the negative effects of settlement fails. 

The Commission also believes that 

facilitating an increase in same-day 

affirmations helps mitigate the effects of 

settlement fails, as affirmations on trade 

date can limit the potential for 

processing errors on settlement day that 

cause fails.120 More generally, the 

Commission preliminarily believes that 

the anticipated benefits of a shortened 

settlement cycle justify the anticipated 

costs. 

3. Proposed Deletion of Rule 15c6–1(c) 

and Conforming Technical 

Amendments to Rule 15c6–1 

As explained above, Rule 15c6–1(c) 

establishes a T+4 settlement cycle for 

firm commitment offerings for securities 

that are priced after 4:30 p.m. ET, unless 

otherwise expressly agreed to by the 

parties at the time of the transaction. 


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121See Prospectus Delivery; Securities 

Transaction Settlement Cycle, Exchange Act 

Release No. 34–35705 (May 11, 1995), 60 FR 26604 

(May 17, 1995) (‘‘1995 Amendments Adopting 

Release’’). 

122The exemption was limited to sales to an 

underwriter by an issuer and initial sales by the 

underwriting syndicate and selling group. Any 

secondary resales of such securities were to settle 

on a T+3 settlement cycle. T+3 Adopting Release, 

supra note 9, at 52898. 

123 Id. 

124See Exchange Act Release No. 34–35396 (Feb. 

21, 1995), 60 FR 10724 (Feb. 27, 1995) (‘‘1995 

Amendments Proposing Release’’). 

125 Id. 

126 1995 Amendments Adopting Release, supra 

note 121, at 26608. 

127 Id. 

128T+1 Report, supra note 18, at 33–35. 

129 Id. at 33. 

130 Id. 

131 Id. 

132 Id. 

133 Id. 

The Commission proposes to delete this 

provision. Deleting Rule 15c6–1(c) 

would, in conjunction with the 

proposed amendment to Rule 15c6–1(a), 

set a T+1 standard settlement cycle for 

firm commitment offerings priced after 

4:30 p.m. ET. However, the so-called 

‘‘override’’ provisions in paragraphs (a) 

and (d) of Rule 15c6–1 would continue 

to allow contracts currently covered by 

paragraph (c) to provide for settlement 

on a timeframe other than T+1 if the 

parties expressly agree to a different 

settlement timeframe at the time of the 

transaction. 

In proposing to delete paragraph (c) of 

Rule 15c6–1, the Commission also 

proposes conforming amendments to 

paragraphs (a), (b), and (d) of the rule. 

Specifically, the Commission is 

proposing to delete all references to 

paragraph (c) of Rule 15c6–1 that 

currently appear in paragraphs (a), (b) 

and (d) of the rule. 

4. Basis for Eliminating T+4 Standard 

for Certain Firm Commitment Offerings 

The Commission believes that 

expanded application of the ‘‘access 

equals delivery’’ standard for prospectus 

delivery supports removing paragraph 

(c) from Rule 15c6–1 because delays in 

the process that made delivery of the 

prospectus difficult to achieve under the 

standard settlement cycle have been 

mitigated by the ‘‘access equals 

delivery’’ standard. In addition, if 

paragraph (c) is removed as proposed, 

paragraph (d) would continue to 

provide underwriters and the parties to 

a transaction the ability to agree, in 

advance of a particular transaction, to a 

settlement cycle other than the standard 

set forth in Rule 15c6–1(a) when needed 

to manage obligations associated with 

the firm commitment offering. 

The Commission adopted paragraphs 

(c) and (d) of Rule 15c6–1 in 1995, two 

years after Rule 15c6–1 was originally 

adopted.121 At the time, the rule 

included a limited exemption from the 

requirements under paragraph (a) of the 

rule for the sale for cash pursuant to a 

firm commitment offering registered 

under the Securities Act.122 The 

exemption for firm commitment 

offerings was added in response to 

public comments stating that new issue 

securities could not settle on T+3 

because prospectuses could not be 

printed prior to the trade date (the date 

on which the securities are priced).123

When the Commission proposed to 

amend Rule 15c6–1 in 1995, it stated 

that, since the adoption of the rule, 

members of the brokerage community 

had suggested the Commission 

eliminate the exemption and ease the 

problems associated with prospectus 

delivery by other means. The primary 

reasons expressed for requiring T+3 

settlement of such offerings were: (i) 

The secondary market for a new issue 

may be subject to greater price 

fluctuations or instability, which in turn 

may expose underwriters, dealers and 

investors to disproportionate credit and 

market risk; and (ii) the bifurcated 

settlement cycle created for initial sales 

and resales of new issues would be 

disruptive to broker-dealer operations 

and to the clearance and settlement 

system.124 In particular, it was 

explained that if a purchaser of a new 

issue sells on the first or second day 

after pricing, the purchaser’s broker will 

not be able to settle with the buyer’s 

broker on a T+3 schedule because the 

securities would not yet be available for 

settlement purposes.125 As a result, all 

such trades by the purchasers would 

‘‘fail’’ and result in expense, 

inefficiencies, and greater settlement 

risk for all participants. A bifurcated 

settlement cycle also may require the 

maintenance of separate computer 

systems and additional internal 

procedures. 

The vast majority of commenters 

submitting feedback in response to the 

1995 Amendments Proposing Release 

supported T+4 as the standard 

settlement cycle for firm commitment 

offerings price after 4:30 p.m.126 Several 

of these commenters reasoned that it is 

difficult to print prospectuses within a 

T+3 timeframe when securities are 

priced late in the day. These 

commenters also stated that the 

potential systemic and market risks 

associated with the proposed T+4 

provision should be limited because 

most secondary market trading in the 

subject securities would not begin 

trading until the opening of the market 

on the next business day, and therefore 

the primary issuance of securities would 

be available to settle secondary trading 

in the security.127

The T+1 Report stated that paragraph 

(c) is rarely used in the current T+2 

settlement environment, but the IWG 

expects a T+1 standard settlement cycle 

would increase reliance on paragraph 

(c).128 The T+1 Report further stated 

that the IWG recommends retaining 

paragraph (c) but amending it to 

establish a standard settlement cycle of 

T+2 for firm commitment offerings.129

The T+1 Report cited issues with 

respect to complex documentation and 

other operational elements of equity 

offerings that may delay settlement to 

T+2 in a T+1 environment. 

With respect to debt offerings, the T+1 

Report stated that many such offerings 

frequently rely on the exception 

provided in Rule 15c6–1(d).130 In 

describing the reasons debt offerings 

‘‘have historically needed, and will 

continue to need, this exemption if the 

standard settlement cycle is moved to 

T+1,’’ the T+1 Report stated that such 

offerings are ‘‘document-intensive and 

typically have more documentation than 

equity offerings.’’ 131 According to the 

T+1 Report, this documentation 

includes indentures, guarantees, and 

collateral documentation, all of which 

are individually negotiated and unique 

to the transaction.132 Thus, the T+1 

Report states, a substantial portion of 

debt offerings settle later than T+3.133

While the Commission appreciates 

that documentation relating to firm 

commitment offerings for equities must 

be completed prior to settlement of such 

transactions, the T+1 Report did not 

explain why or how timely completion 

of such documentation would not be 

possible if the exception in paragraph 

(c) of Rule 15c6–1 were eliminated. In 

contrast, the T+1 Report states, as 

discussed above, that firm commitment 

offerings generally settle in alignment 

with the standard settlement cycle. As 

the Commission is not currently aware 

of any data or facts indicating that the 

documentation associated with firm 

commitment offerings cannot be 

completed by T+1, the Commission 

preliminarily believes that the need to 

complete transaction documentation 

prior to settlement does not justify 

proposing a separate standard 

settlement cycle of T+2 for equity 

offerings. Rather, to the extent that 

documentation may in some cases 

require more time to complete than is 

available under a T+1 standard 

settlement cycle, the parties to the 


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134As noted above, prior to the Commission’s 

1995 amendments to Rule 15c6–1 members of the 

broker-dealer community expressed the view that 

(i) the secondary market for a new issue may be 

subject to greater price fluctuations or instability, 

which in turn may expose underwriters, dealers 

and investors to disproportionate credit and market 

risk; and (ii) a bifurcated settlement cycle created 

for initial sales and resales of new issues would be 

disruptive to broker-dealer operations and to the 

clearance and settlement system. See supra notes 

124, 125, and accompanying text. While these 

arguments were made by market participants when 

the standard settlement cycle in the U.S. was still 

T+3, the Commission preliminarily believes that 

they remain relevant to the Commission’s proposed 

amendment to Rule 15c6–1(a) and proposed 

deletion of Rule 15c6–1(c). In particular, if the 

Commission were to adopt the proposed 

amendment to Rule 15c6–1(a) without deleting Rule 

15c6–1(c), a broker-dealer settling on behalf of a 

customer who sells shares of a new issue on the 

first day after pricing might, in some cases, not be 

able to settle with the purchaser’s broker-dealer 

because the securities may not yet be available for 

settlement. Specifically, if the new issue settled on 

T+2 and the secondary market transactions 

executed on the first day of trading settled on T+1, 

the primary issuance would presumably not be 

available for timely settlement of the secondary 

market transactions. Conversely, if the Commission 

adopts both the proposed amendment to Rule 15c6– 

1(a) and the proposed deletion of Rule 15c6–1(c), 

the settlement cycle would not be bi-furcated and 

the basis for the above-described concerns raised 

previously by the broker-dealer community related 

to bi-furcation of the settlement cycle would not be 

applicable. 

135See supra note 12 and accompanying text 

(explaining that T+0 in this release is intended to 

refer to netted settlement by the end of trade date); 

see also infra Part IV (discussing the same). 

transaction can agree to a longer 

settlement period pursuant to paragraph 

(d) when they enter the transaction. In 

this way, deleting paragraph (c) does not 

prevent the parties from using 

paragraph (d) to agree to a longer 

settlement period; it only removes the 

presumption that such firm 

commitment offerings should be subject 

to a different settlement cycle than the 

standard settlement cycle set forth in 

paragraph (a). 

In addition, as discussed further in 

Part III.E.4, 17 CFR 230.172 (‘‘Rule 

172’’) has implemented an ‘‘access 

equals delivery’’ model that permits, 

with certain exceptions, final 

prospectus delivery obligations to be 

satisfied by the filing of a final 

prospectus with the Commission, rather 

than delivery of the prospectus to 

purchasers. As a result of these changes, 

broker-dealers generally would not 

require time to print and deliver 

prospectuses—a point originally cited 

by many commenters in support of 

adopting paragraph (c)—and the 

Commission preliminarily believes that 

broker-dealers are able to satisfy their 

obligations with respect to these firm 

commitment offerings on a timeline 

much shorter than the current T+4 

standard settlement cycle for these firm 

commitment offerings. 

In addition, establishing T+1 as the 

standard settlement cycle for these firm 

commitment offerings, and thereby 

aligning the settlement cycle with the 

standard settlement cycle for securities 

generally, would reduce exposures of 

underwriters, dealers, and investors to 

credit and market risk, and better ensure 

that the primary issuance of securities is 

available to settle secondary market 

trading in such securities.134 The 

Commission believes that harmonizing 

the settlement cycle for such firm 

commitment offerings with secondary 

market trading, to the greatest extent 

possible, limits the potential for 

operational risk. 

Therefore, in the Commission’s view, 

deleting paragraph (c) while retaining 

paragraph (d) provides sufficient 

flexibility for market participants to 

manage the potential need for longer 

than T+1 settlement on certain firm 

commitment offerings priced after 4:30 

p.m. that may include ‘‘complex’’ 

documentation because paragraph (d) 

would continue to permit the 

underwriters and the parties to a 

transaction to agree, in advance of 

entering the transaction, whether T+1 

settlement or some other settlement 

timeframe is appropriate for the 

transaction. In addition, the 

Commission believes that having the 

underwriters and the parties to the 

transaction agree in advance of entering 

the transaction whether to deviate from 

the standard settlement cycle 

established in paragraph (a) would 

promote transparency among the 

parties, in advance of entering the 

transaction, as to the length of the time 

that it takes to complete documentation 

with respect to the transaction. The 

Commission requests comment on these 

views. To the extent that commenters 

agree with the T+1 Report, the 

Commission requests that such 

commenters provide data or other 

detailed information explaining why a 

T+1 settlement cycle is an inappropriate 

standard for all firm commitment 

offerings priced after 4:30 p.m., such as 

an explanation or description for what 

specific documentation cannot be 

completed consistent with a T+1 

settlement cycle. 

5. Request for Comment 

The Commission is requesting 

comment on all aspects of the proposed 

amendments to Rule 15c6–1 to shorten 

the current T+2 and T+4 standard 

settlement cycles to T+1. The 

Commission also solicits comment on 

the particular questions set forth below, 

and encourages commenters to submit 

any relevant data or analysis in 

connection with their answers. 

1. Should the Commission amend 

Rule 15c6–1 to shorten the standard 

settlement cycle to T+1 as proposed? 

Why or why not? 

2. Are efforts to shorten the standard 

settlement cycle to T+1 a logical step on 

the path to T+0 settlement, or would 

shortening to T+1 require investments 

or processes that would be outdated or 

unnecessary in a T+0 environment? 135

Please explain why or why not. 

3. Is the current scope of securities 

covered by Rule 15c6–1, including the 

exclusions provided in the text of Rule 

15c6–1(a), still appropriate in light of 

the Commission’s proposal to shorten 

the standard settlement cycle to T+1? 

Are there any asset classes, securities as 

defined in Section 3(a)(10) of the 

Exchange Act, or types of securities 

transactions for which the proposed 

amendment to Rule 15c6–1(a) would 

present compliance problems for brokerdealers? What would be the quantitative 

and qualitative impacts of maintaining 

those exclusions? 

4. The Commission requests that 

commenters provide information 

regarding securities transactions that, in 

today’s T+2 settlement environment, 

generally settle later than T+2. To what 

extent does this occur, and what are the 

circumstances that motivate market 

participants to settle later than T+2? If 

Rule 15c6–1(a) is amended to shorten 

the standard settlement cycle from T+2 

to T+1, would market participants 

continue to settle such securities 

transactions on a longer settlement 

cycle? Would market participants who 

frequently settle certain securities 

transactions later than T+2 settle such 

transactions later than T+1 if the 

Commission adopts the proposed 

amendment to Rule 15c6–1(a)? 

Conversely, under what circumstances 

are securities transactions settled on an 

expedited basis (i.e., on timeframes less 

than T+2), and how often how common 

is such settlement? What are the 

circumstances that motivate earlier 

settlements? If Rule 15c6–1(a) is 

amended to shorten the standard 

settlement cycle from T+2 to T+1, how 

will the proposed amendment affect 

these expedited settlement decisions? 

5. To what extent do market 

participants currently rely on the 

override provision in Rule 15c6–1(a)? 

Would market participants expect use of 

the provision to increase or decrease in 

a T+1 environment? Why or why not? 

6. As noted above, the Commission 

previously issued an order that 

exempted security-based swaps from the 

requirements under Rule 15c6–1, and 


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136See supra note 83. 

137See supra note 90 and accompanying text. 

138See supra note 96 and accompanying text. 

139ETPs constitute a diverse class of financial 

products that seek to provide investors with 

exposure to financial instruments, financial 

benchmarks, or investment strategies across a wide 

range of asset classes. ETP trading occurs on 

national securities exchanges and other secondary 

markets that are regulated by the Commission under 

the Exchange Act, making ETPs widely available to 

market participants, from individual investors to 

institutional investors, including hedge funds and 

pension funds. The largest category of ETPs are 

ETFs, which are open-end fund vehicles or UITs 

that are registered investment companies under the 

Investment Company Act. See Request for Comment 

on Exchange-Traded Products, Exchange Act 

Release No. 75165 (June 12, 2015), 80 FR 34729 

(June 17, 2015). 

140For example, the way a market participant 

executes a creation or redemption of an ETF share 

resembles a stock trade in the secondary market. A 

market participant typically referred to as an 

‘‘Authorized Participant’’ or ‘‘AP’’ submits an order 

to create or redeem (‘‘CR’’) ETF shares much like 

an investor submits an order to his broker to buy 

or sell a stock. Also, similar to a stock trade, the 

CR order settles on a T+2 settlement cycle through 

NSCC. See ICI, 20 ICI Research Perspective, no. 5, 

Sept. 2014, at 14, https://www.ici.org/pdf/per20- 

05.pdf; see also DTCC, Exchange Traded Fund 

(ETF) Processing, http://www.dtcc.com/clearingservices/equities-trade-capture/etf; DTCC, ETF and 

CNS Processing Facts, https://dtcclearning.com/ 

content/220-equities-clearing/exchange-tradedfund-etf/about-etf/3613-etf-cns-processingfacts.html. 

141Rule 6c–11 under the Investment Company 

Act permits ETFs to use ‘‘custom baskets’’ if their 

basket policies and procedures: (i) Set forth detailed 

parameters for the construction and acceptance of 

custom baskets that are in the best interest of the 

ETF and its shareholders, including the process for 

any revisions to, or deviations from, those 

parameters; and (ii) specify the titles or roles of the 

employees of the ETF’s investment adviser who are 

required to review each custom basket for 

compliance with those parameters. See infra note 

257 and accompanying text (further discussing the 

creation unit purchase and redemption process for 

ETFs). 

subsequently extended that exemptive 

relief on several occasions, but the 

exemptive relief that previously covered 

compliance with Rule 15c6–1 expired in 

2020.136 Should the Commission issue a 

new order providing exemptive relief 

from compliance with Rule 15c6–1 for 

transactions in security-based swaps? If 

so, why or why not? 

7. Should the Commission amend any 

other provisions of Rule 15c6–1 (other 

than the proposed amendments to the 

rule) for the purposes of shortening the 

standard settlement cycle to T+1? If so, 

which provisions and why? 

8. Are the conditions set forth in the 

Commission’s exemptive order for 

securities traded outside the U.S. still 

appropriate? 137 If not, why not? If the 

exemption should be modified, how 

should it be modified and why? 

9. Are the conditions set forth in the 

Commission’s exemptive order for 

insurance contracts still appropriate? 138

If not, why not? If the exemption should 

be modified, how should it be modified 

and why? 

10. Should the Commission provide 

exemptive relief under Rule 15c6–1(b) 

for any other securities or types of 

transactions? 

11. Would shortening the standard 

settlement cycle to T+1 as proposed 

make it difficult for broker-dealers to 

comply with the requirements of Rule 

15c6–1? Please provide examples. 

12. How would retail investors be 

impacted by new processes that brokerdealers may implement in support of a 

T+1 standard settlement cycle? For 

example, do commenters believe that 

broker-dealers would require changes to 

the way that retail investors fund their 

accounts in a T+1 environment? If so, 

how? Would shortening the standard 

settlement cycle to T+1 result in retail 

investors encountering ongoing costs 

due to a delay in their ability to make 

investments? Would shortening the 

standard settlement cycle to T+1 result 

in any benefits to retail investors? 

13. How would institutional investors 

be impacted by new processes that 

broker-dealers may implement in 

support of a T+1 standard settlement 

cycle? For example, do market 

participants anticipate an increase in 

prefunding requirements for 

institutional investors in a T+1 

environment? 

14. What impact, if any, would the 

proposed amendment to Rule 15c6–1(a) 

have on market participants who engage 

in cross-border transactions? To what 

extent would shortening the standard 

settlement cycle in the U.S. to T+1 

result in increased or decreased 

operational costs to market participants? 

To what extent would shortening the 

standard settlement cycle for securities 

transactions in the U.S. increase or 

decrease risks associated with crossborder transactions or related 

transactions, such as financing 

transactions? 

15. What impact, if any, would the 

proposed amendment to Rule 15c6–1(a) 

have on market participants who engage 

in trading activity across various 

financial product classes, each 

potentially involving a different 

settlement cycle? For example, what 

would be the impact on market 

participants conducting transactions in 

U.S. equities and U.S. commercial paper 

on the same day? Alternatively, are 

there benefits to alignment of the 

settlement timeframes across most U.S. 

security types to one day? For example, 

options and government securities 

currently settle on T+1 while equities, 

corporate bonds, and municipal debt 

settle on T+2. 

16. What impact, if any, would the 

proposal have on trading involving 

derivatives and exchange-traded 

products (‘‘ETPs’’)? 139 Would 

shortening the settlement cycle for ETPs 

affect the costs of creating or redeeming 

shares in ETPs that hold portfolio 

securities that are on a different 

settlement cycle, such as net capital 

charges related to collateral 

requirements? 140 If so, would such a 

change in costs affect the efficiency or 

effectiveness of the arbitrage between an 

ETP’s secondary market price and the 

value of its underlying assets? Would 

such a change lead to other downstream 

effects, such as an increase in the use of 

cash or custom baskets? 141 Similarly, 

would the proposed amendments affect 

transactions in derivatives instruments 

if a derivative were to settle on a 

different timeframe than its underlying 

reference assets? 

17. What impact, if any, would 

shortening the standard settlement cycle 

to T+1 have on the levels of liquidity 

risk that may currently exist as a result 

of mismatches between the settlement 

cycles for different markets? For 

example, would shortening the standard 

settlement cycle to T+1 eliminate or 

reduce any liquidity risk that mutual 

funds may face as a result of the 

mismatch between the current T+1 

settlement cycle for transactions in 

open-end mutual fund shares that are 

settled through NSCC and the T+2 

settlement cycle that is applicable to 

many portfolio securities held by 

mutual funds? 

18. The Commission solicits comment 

on the status and readiness of the 

technology and processes currently used 

by market participants to support a T+1 

settlement cycle. 

19. What impact would the 

Commission’s proposed deletion of 

paragraph (c) of Rule 15c6–1 have on 

underwriters, broker-dealers, and other 

market participants? 

20. Have the technological and 

operational capabilities of brokerdealers and their service providers 

improved sufficiently to allow 

prospectuses to be printed and 

delivered on time if the standard 

settlement cycle for firm commitment 

offerings priced after 4:30 p.m. is 

shortened to T+1? Please describe such 

improvements and why they would or 

would not be sufficient to support 

shortening the standard settlement cycle 

for such transactions. 

21. Should the Commission shorten 

the standard settlement cycle for firm 

commitment offerings priced after 4:30 

p.m. to a time frame other than T+1 

(e.g., T+2, or T+3)? If so, why? 


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142See, e.g., ISITC Virtual Winter Forum, DTCC 

presentation to Corporate Actions Working Group 

(Dec. 13, 2021). 

143T+1 Report, supra note 18, at 20. 

144 Id. at 19–20; see also ISITC Virtual Winter 

Forum, DTCC presentation to Corporate Actions 

Working Group (Dec. 13, 2021). 

145See DTC, IVORS Service Guide, https://

www.dtcc.com/∼/media/Files/Downloads/ 

Settlement-Asset-Services/EDL/IVORS.pdf. 

146See SIA Business Case Report, supra note 21; 

BCG Study, supra note 22; see also T+2 Proposing 

Release, supra note 30, at 69252, 69254 (describing 

in detail the SIA Business Case Report and the BCG 

Study). The building blocks are described generally 

as the core initiatives that need to be implemented 

prior to shortening the settlement cycle. See SIA 

Business Case Report, supra note 21, at 18. 

147See, e.g., Press Release, SIA, SIA Board 

Endorses Program to Modernize Clearing, 

Settlement Process for Securities (July 18, 2002) 

(statement from the SIA Board of Directors 

endorsing straight-through processing); letter from 

Jeffrey C. Bernstein, Chairman, SIA STP Steering 

Committee, Securities Industry Association (June 

16, 2004) (‘‘SIA Letter’’). The comment letter is 

available at https://www.sec.gov/rules/concept/ 

s71304.shtml. 

148T+2 Proposing Release, supra note 30, at 

69252. 

149Exchange Act Release No. 49405 (Mar. 11, 

2004), 69 FR 12922 (Mar. 18, 2004) (‘‘Concept 

Release’’). 

150 Id. 

151See SIA Letter, supra note 147 (commenting 

on the Concept Release); letter from Margaret R. 

Blake, Counsel to the Association, Dan W. 

Schneider, Counsel to the Association, The 

Association of Global Custodians (June 28, 2004) 

(commenting on the Concept Release). Copies of the 

comment letters are available at https://

www.sec.gov/rules/concept/s71304.shtml. 

152See supra note 151. 

153For example, DTCC ITP Matching has 

introduced centralized matching with its CTM 

platform that continues to automate the trade 

confirmation process and includes connectivity via 

FIX and the SWIFT network to custodian banks for 

the purposes of settlement notification. See DTCC, 

Why Is DTCC Migrating US Trade Flows to CTM 

and Terminating OASYS?, https://

dtcclearning.com/content/1439-cat-institutionaltrade-processing/cat-ctm/us-trade-flows/us-tradeson-ctm-faqs/us-trades-on-ctm-general-faqs/7353- 

why-is-dtcc-migrating-us-trade-flows-to-ctm-andterminating-oasys.html. 

154T+2 Proposing Release, supra note 30, at 

69258. 

22. Would any additional 

technological and operational changes, 

if any, be necessary for broker-dealers to 

print and deliver prospectuses on time 

for firm commitment offerings priced 

after 4:30 p.m. if a T+1 standard 

settlement cycle is adopted for such 

transactions? What costs would be 

associated with such improvements? 

23. Would the Commission’s 

proposed deletion of paragraph (c) of 

Rule 15c6–1 decrease exposures of 

underwriters, dealers and investors to 

market and credit risks related to the 

bifurcated settlement periods for new 

issues and secondary market 

transactions? Please explain why or why 

not. 

24. With respect to corporate actions, 

in most cases the ex-date will be the 

record date (‘‘RD’’), meaning that RD–1 

will be the last day that a purchaser will 

gain the dividend or entitlement.142

Given the shorter timeframes, the 

Commission requests comments on this 

dynamic and statements in the T+1 

Report urging a concerted effort among 

exchanges, other authorities, and issuers 

to standardize some currently 

fragmented procedures to set up and 

announce corporate actions.143

25. Regarding corporate actions that 

concern voluntary reorganizations, the 

Commission solicits comments on the 

impact of a T+1 settlement cycle on 

DTC’s ‘‘cover/protect’’ process for 

certain tenders, exchanges, or rights 

offerings.144 This procedure enables 

DTC participants to allow their 

investors to make or change their final 

elections until the end of an offer’s 

expiration date; where an offer allows, 

participants provide DTC with a notice 

of guaranteed delivery, allowing later 

delivery of the shares or rights. How 

would this process affect operations 

under a T+1 settlement cycle? Would 

any changes to this process be needed? 

26. The Commission generally 

requests comment on the deadlines and 

timeframes set forth in the T+1 Report. 

For example, the Commission requests 

comment on their impact on DTC’s 

IVORS function, used for retiring a UIT 

by withdrawing assets and transferring 

them to a new UIT.145

27. If the Commission adopts the 

proposed deletion of paragraph (c) of 

Rule 15c6–1 and the proposed 

conforming technical amendments to 

paragraphs (a), (b) and (d) of the rule, 

should the Commission adopt any 

additional amendments to Rule 15c6–1 

in connection with such changes? 

B. New Requirement for ‘‘Same-Day 

Affirmation’’ 

As discussed in Part II.B.1, integral to 

completing the institutional trade 

process is achieving an affirmed 

confirmation, which can require a series 

of communications between a brokerdealer and its institutional customer. 

Since 2000, market participants have 

identified accelerating this process, 

which requires agreement among the 

parties regarding the trade details that 

facilitate trade allocation when needed, 

as well as trade confirmation and 

affirmation, as one of the core building 

blocks to improve the speed, safety, and 

efficiency of the trade settlement 

process, and ultimately to achieve 

shorter settlement cycles.146 In 

particular, in the SIA Business Case 

Report, the securities industry noted the 

need to prioritize ensuring that a higher 

number and proportion of trades were 

confirmed and affirmed on trade 

date.147 These improvements were 

considered essential to compressing the 

settlement cycle and facilitating an 

environment less prone to operational 

risk.148 This objective, where brokerdealers and their institutional customers 

allocate, confirm, and affirm the trade 

details necessary to achieve settlement 

by the end of trade date has sometimes 

been referred to as ‘‘same-day 

affirmation.’’ 

In its 2004 concept release seeking 

comment on methods to improve the 

safety and operational efficiency of the 

National C&S System to achieve 

straight-through processing,149 the 

Commission explored whether to adopt 

its own rule or whether the SROs 

should amend their existing rules to 

require the completion of the 

confirmation and affirmation process on 

trade date.150 Many market participants 

supported a Commission rule to 

mandate it, but believed that such 

requirements should be implemented in 

phases to allow for the development of 

certain processing improvements.151

Recommendations for such 

improvements included: (i) Achieving 

100% of trades as matched or affirmed 

as soon as possible after execution on 

trade date; (ii) achieving asynchronous 

(non-sequential) and electronic 

communication between all trade 

parties, including notices of execution, 

allocations, match status, confirmation 

status, and settlement instructions; (iii) 

adoption of an industry standard 

electronic format for message 

communication; and (iv) adoption of 

standards that allow manual processing 

on an exception-only basis.152

Since 2004, the industry has made 

significant progress in developing new 

centralized systems and processes 

designed to automate and streamline the 

institutional trade processing 

environment, both from an operational 

and technological perspective.153

Market participants also rely on a 

variety of ‘‘local’’ matching tools that 

allow them to compare trade 

information received from another party 

against their own trade information. 

Further, industry coordination has 

facilitated improved communication 

between the parties to a trade using 

standardized messaging protocols, such 

as FIX, and the SWIFT network. When 

the Commission proposed to shorten the 

settlement cycle to T+2, the 

Commission observed that the market 

has improved these confirmation, 

affirmation, and matching processes 

through the use of CMSPs.154


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155Omgeo, Mitigating Operational Risk and 

Increasing Settlement Efficiency through Same Day 

Affirmation (SDA), at 2, 7 (Oct. 2010) (‘‘Omgeo 

Study’’). 

156 DTCC, Proposal to Launch a New Cost-Benefit 

Analysis on Shortening the Settlement Cycle, at 7 

(Dec. 2011), https://www.dtcc.com/en/news/2011/ 

december/01/proposal-to-launch-a-new-costbenefit-analysis-on-shortening-the-settlementcycle.aspx. 

157 DTCC ITP Forum Remarks, supra note 58. 

158See T+1 Report, supra note 18, at 13. 

159 In an effort to also encourage investment 

advisers to ensure that their own operations and 

procedures for institutional trade processing can 

accommodate T+1 or shorter settlement timeframes, 

in Part III.C the Commission proposes an 

amendment to an existing recordkeeping rule for 

registered investment advisers. 

160For example, DTCC ITP’s OASYS platform is 

a trade allocation and acceptance service that 

communicates trade and allocation details between 

investment managers and broker-dealers. DTCC ITP 

is in the process of decommissioning OASYS and 

replacing it with CTM, an enriched automated 

system that offers central matching workflow 

(including allocation) settlement notification and 

ALERT services. ALERT provides a database for the 

maintenance and communication of account and 

SSI information so that investment managers, 

broker-dealers, custodian banks and prime brokers 

can share account information electronically. See 

DTCC, ALERT, https://www.dtcc.com/institutionaltrade-processing/itp/alert. 

161Confirmations will include the following trade 

information: transaction type, security (including 

an identifier and description), account ID and title, 

trade date, settlement date, quantity, price, 

commission (if any), taxes and fees (if any), accrued 

interest (if appropriate) and the net amount of 

money to be paid or received at settlement. A 

Continued 

A 2010 white paper issued by Omgeo 

(now DTCC ITP) also described sameday affirmation as ‘‘a prerequisite’’ of 

shortening the settlement cycle because 

of its impact on the rate of settlement 

fails and on operational risk.155

According to data published in 2011 

regarding affirmation rates achieved 

through the use of one CMSP, on 

average, 45% of trades were affirmed on 

trade date, 90% were affirmed by the 

end of T+1, and 92% were affirmed by 

noon on T+2.156 Existing processes for 

matching institutional trades rely on a 

number of manual elements, and 

currently only about 68% of trades 

achieve affirmation by 12:00 midnight at 

the end of trade date.157 While these 

rates have improved over time, the 

improvements have been incremental 

and, in the Commission’s view, 

insufficient. Failing to affirm by the end 

of trade date increases the likelihood 

that errors or exceptions will not be 

resolved in time for settlement. The 

sooner the parties have affirmed the 

trade information for their transaction, 

the lower the likelihood of a settlement 

fail because the parties will have more 

time to identify and resolve any 

potential errors. The T+1 Report 

highlights the need for achieving 

affirmation on trade date and 

encourages that on trade date 

allocations be completed by 7:00 p.m. 

ET and affirmations by 9:00 p.m. ET to 

facilitate shortening of the standard 

settlement cycle to T+1.158 As discussed 

below, the Commission proposes Rule 

15c6–2 to require completion of 

institutional trade allocations, 

confirmations, and affirmations by the 

end of trade date. 

1. Proposed Rule 15c6–2 Under the 

Exchange Act 

The Commission proposes Rule 15c6– 

2 to require that, where parties have 

agreed to engage in an allocation, 

confirmation, or affirmation process, a 

broker or dealer would be prohibited 

from effecting or entering into a contract 

for the purchase or sale of a security 

(other than an exempted security, a 

government security, a municipal 

security, commercial paper, bankers’ 

acceptances, or commercial bills) on 

behalf of a customer unless such broker 

or dealer has entered into a written 

agreement with the customer that 

requires the allocation, confirmation, 

affirmation, or any combination thereof, 

be completed as soon as technologically 

practicable and no later than the end of 

the day on trade date in such form as 

may be necessary to achieve settlement 

in compliance with Rule 15c6–1(a). As 

explained in further detail below, the 

Commission believes that implementing 

a T+1 standard settlement cycle, as well 

as any potential further shortening 

beyond T+1, would require a significant 

improvement in the current rates of 

same-day affirmations to ensure timely 

settlement in a T+1 environment. In this 

way, the Commission also believes that 

proposed Rule 15c6–2 should facilitate 

timely settlement as a general matter, 

regardless of shortening the settlement 

cycle, because it will accelerate the 

completion of affirmations on trade 

date. Because broker-dealers and their 

institutional customers will review and 

reconcile trade data earlier in the 

settlement process, the Commission 

believes that same-day affirmation can 

improve the accuracy and efficiency of 

institutional trade processing. In 

particular, conducting these activities 

earlier in the process, and as soon as 

technologically practicable, will allow 

more time to resolve errors, an 

important consideration as shorter 

settlement cycles compress the available 

time to resolve errors. 

Proposed Rule 15c6–2 applies 

requirements to a broker-dealer’s 

contractual arrangements with its 

institutional customers because the 

Commission preliminarily believes that 

broker-dealers are best positioned to 

ensure (through their contractual 

arrangements) that their customers, 

including those acting on behalf of their 

customers, will perform the required 

allocation, confirmation, and 

affirmation functions on the appropriate 

timeframe and as soon as 

technologically practicable. Because 

broker-dealers are the party to a 

transaction most likely to have access to 

a clearing agency, the broker-dealer is 

also the party best positioned to ensure 

the timely settlement of institutional 

trades, and as such, should be able to 

ensure via its customer agreements that 

institutional customers or their agents 

also comport their operations to 

facilitate same-day affirmation.159 In 

addition, requiring broker-dealers to 

enter into written agreements that 

require the allocation, confirmation, and 

affirmation processes be completed as 

soon as technologically practicable and 

no later than the end of trade date may 

help increase the use of standardized 

terms and trade details across market 

participants, which may enable the 

parties to reduce their reliance on 

manual processes in favor of more 

automated methods. 

As proposed, Rule 15c6–2 does not 

define the terms ‘‘allocation,’’ 

‘‘confirmation,’’ or ‘‘affirmation.’’ As 

discussed in Part II.B.3.c), trade 

allocation refers to the process by which 

an institutional investor (often an 

investment adviser) allocates a large 

trade among various client accounts or 

determines how to apportion securities 

trades ordered contemporaneously on 

behalf of multiple funds or non-fund 

clients.160 The terms ‘‘confirmation’’ 

and ‘‘affirmation’’ refer to the 

transmission of messages among brokerdealers, institutional investors, and 

custodian banks to confirm the terms of 

a trade executed for an institutional 

investor, a process necessary to ensure 

the accuracy of the trade being settled. 

Broker-dealers transmit trade 

confirmations to their customers to 

verify trade information, and customers 

provide an affirmation in response to 

affirm the confirmation so that the 

transaction can be prepared for 

settlement. The Commission believes 

that these terms are widely used and 

generally understood by market 

participants who engage in institutional 

trade processing. 

Proposed Rule 15c6–2 uses the term 

‘‘confirmation’’ to refer to the 

operational message that includes trade 

details provided by the broker-dealer to 

the customer to verify trade information 

so that a trade can be prepared for 

settlement on the timeline established 

in Rule 15c6–1(a).161 In contrast, 


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confirmation will also include the broker name and 

whether the broker-dealer was acting as principal 

or agent on the trade. 

162 17 CFR 240.10b–10. For more information on 

confirmations required under Rule 10b–10, see Part 

III.E.3. 

163For purposes of this rule, ‘‘end of the day’’ has 

the same meaning as it is generally understood: no 

later than 11:59:59 p.m., Eastern Standard Time or 

Eastern Daylight Saving Time, whichever is 

currently in effect on trade date. 

164See T+1 Report, supra note 18, at 39. 

165While the concept of completing these 

functions on trade date has often been referred to 

a ‘‘same-day’’ affirmation, the Commission is 

proposing instead to use the term ‘‘trade date’’ in 

the rule to be clear that the allocation, confirmation, 

and affirmation process should be completed on the 

trade date. 

166Local matching platforms include, for 

example, the trade reconciliation and inventory 

management tools that market participants use to 

reconcile trade information. See DTCC, Embracing 

Post-Trade Automation: Seven Ways the Sell-Side 

Will Benefit from No-Touch Future (Nov. 2020) 

(‘‘DTCC Embracing Post-Trade Automation’’), 

https://www.dtcc.com/itp-hub/dist/downloads/ 

broker_supplement_11.11.20z.pdf. Examples of 

such service providers include Bloomberg, 

Corfinancial, Lightspeed, and SS&C Technologies. 

167For more information about the use and 

impact of ‘‘local’’ matching platforms, see supra 

note 166. A 2020 DTCC survey of global brokerdealers found that certain institutional post-trade 

processing costs could be reduced by 20–25% 

through leveraging post-trade automation, which 

would in turn eliminate redundancies and manual 

processing and mitigate operational risks. See 

DTCC, DTCC Identifies Seven Areas of Broker Cost 

Savings as a Result of Greater Post-Trade 

Automation (Nov. 18, 2020), https://www.dtcc.com/ 

news/2020/november/18/dtcc-identifies-sevenareas-of-broker-cost-savings-as-a-result-of-greaterpost-trade-automation; see also DTCC Embracing 

Post-Trade Automation, supra note 166. 

168See DTCC, Re-Imagining Post-Trade: NoTouch Processing Within Reach, at 4 (Sept. 2019), 

https://www.dtcc.com/-/media/Files/Downloads/ 

Institutional-Trade-Processing/ITP-Story/DTCC-ReImagining-Post-Trade.pdf. 

confirmations required by Exchange Act 

Rule 10b–10 concern a series of 

disclosures that broker-dealers are 

required to provide in writing to 

customers at or before completion of a 

transaction.162 While some matching or 

electronic trade confirmation services 

may use the operational confirmation 

process described in proposed Rule 

15c6–2 to produce a confirmation for 

purposes of compliance with Rule 10b– 

10, others may not. Accordingly, the 

term ‘‘confirmation’’ as used in 

proposed Rule 15c6–2 should be 

understood to refer to the institutional 

trade processing message or verification 

and not the disclosure required under 

Rule 10b–10. Below the Commission 

solicits comment as to whether these 

terms are sufficiently understood to 

facilitate compliance with the proposed 

rule. 

Proposed Rule 15c6–2 would also 

require broker-dealers to enter into a 

written agreement with a ‘‘customer’’ 

that has agreed to engage in the 

allocation, confirmation, or affirmation 

process. For purposes of the rule, the 

term ‘‘customer’’ includes any person or 

agent of such person who opens a 

brokerage account at a broker-dealer to 

effect an institutional trade or purchases 

or sells a security for which the brokerdealer receives or will receive 

compensation. In the institutional trade 

processing environment, the 

Commission understands that at times, 

a broker-dealer may accept instructions 

or trades from entities acting on behalf 

of the institutional investor. The term, 

as used in proposed Rule 15c6–2, is 

intended to cover both the institutional 

investor and any and all agents acting 

on its behalf. As stated below, the 

Commission is seeking further comment 

on whether the obligations imposed by 

proposed Rule 15c6–2 should explicitly 

state that contracts of such agents acting 

on behalf of the broker-dealer’s 

customer are subject to the proposed 

rule or whether the proposed rule text 

as written is sufficiently clear. 

Finally, the written agreement 

executed pursuant to proposed Rule 

15c6–1 requires that the allocation, 

confirmation, and affirmation processes, 

or any combination thereof, related to 

these trades be completed as soon as 

technologically practicable and no later 

than the end of the day on trade date in 

such form as may be necessary to 

achieve settlement in compliance with 

Rule 15c6–1(a).163 The Commission is 

proposing ‘‘end of the day on trade 

date’’ rather than requiring a specific 

time earlier than end of day to allow 

firms to maximize their internal 

processes to meet the appropriate cutoff 

times and other deadlines, as soon as 

technologically practicable. The 

Commission expects that different 

sectors of the market, different types of 

asset classes or market participants, and 

different operational processes (e.g., 

cross-border transactions) may have 

varying processing deadlines, some of 

which may need to be earlier than end 

of the day to facilitate trade processing. 

For example, as noted above, the T+1 

Report contemplates moving the ‘‘ITP 

Affirmation Cutoff’’ from 11:30 a.m. on 

the day after trade date to 9:00 p.m. on 

trade date to facilitate a T+1 settlement 

cycle.164 Accordingly, the parties would 

be able under the rule to require earlier 

timeframes when appropriate. 

Moreover, the SROs could consider 

whether and how to use earlier than end 

of day deadlines, such as those 

recommended by the T+1 Report. 

2. Basis for Requiring Affirmation No 

Later Than the End of Trade Date 

As discussed in Part II.B, aspects of 

post-trade processing for institutional 

transactions remain inefficient and 

costly for several reasons. Although 

same-day affirmation is considered a 

best practice for institutional trade 

processing, adoption is not universal 

across market participants or even 

across all trades entered by a given 

participant.165 Market participants 

continue to use hundreds of ‘‘local’’ 

matching platforms,166 and rely on 

inconsistent SSI data independently 

maintained by broker-dealers, 

investment managers, custodians, subcustodians, and agents on separate 

databases.167 As discussed in Part II.B, 

processing institutional trades requires 

managing the back and forth involved 

with transmitting and reconciling trade 

information among the parties, 

functionally matching and re-matching 

with the counterparties to the trade, as 

well as custodians and agents, to 

facilitate settlement. It also requires 

market participants to engage in 

allocation processes, such as allocationlevel cancellations and corrections, 

some of which are still processed 

manually.168 This collection of 

redundant, often manual steps and the 

use of uncoordinated (i.e., not 

standardized) databases can lead to 

delays, exceptions processing, 

settlement fails, wasted resources, and 

economic losses. While the proposed 

rule does not require any changes to 

manual processes or existing uses of 

databases and exceptions processing, 

the Commission preliminarily believes 

that market participants may pursue 

improvements to these existing 

processes to manage their obligations 

under Rule 15c6–2, if adopted. 

Although proposed Rule 15c6–2 does 

not require settlement of the transaction 

on trade date, the Commission 

preliminarily believes the proposed rule 

helps ensure that institutional trades 

will timely settle on T+1 because, by 

promoting the completion of these 

processes as soon as technologically 

practicable and no later than the end of 

trade date, it reduces the likelihood of 

exceptions or other errors with respect 

to trade information that can prevent a 

transaction from settling. In the 

Commission’s view, because the rule 

requires that allocation, confirmation, 

and affirmation be completed as soon as 

technologically practicable and no later 

than the end of trade date, it can also 

facilitate shortening the settlement 

cycle, both with respect to T+1 and 

potentially for shortening beyond T+1 

in the future. By elevating an industry 

best practice to a Commission 


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169For example, Financial Industry Regulatory 

Authority (‘‘FINRA’’) Rule 11860 does not require 

that a broker-dealer send a confirmation of trade 

details until the day after trade date, which can 

delay the affirmation process until T+1 (in a T+2 

environment) and reduce the time available to 

manage trade exceptions. FINRA, as well as DTC 

and DTCC ITP Matching may propose new rules, 

procedures or services to further enhance the ability 

of market participants to settle in shorter 

timeframes. 170See T+1 Report, supra note 18, at 26. 

requirement, the Commission believes 

that proposed Rule 15c6–2 can 

significantly improve the current 68% 

rate of affirmations on trade date by 

standardizing the obligations of brokerdealers and their institutional customers 

with respect to the timing of achieving 

affirmations. This, in turn, could 

facilitate increases in operational 

efficiency necessary to support an 

orderly transition to shorter settlement 

cycles. The Commission also anticipates 

that SROs will consider whether to 

propose rule changes to incorporate the 

requirements in new Rule 15c6–2 if 

adopted,169 and proposed Rule 15c6–2 

would likely encourage further 

development of automated and 

standardized practices among market 

participants to facilitate settlement of 

institutional trades. 

3. Request for Comment 

The Commission solicits comment on 

the particular questions set forth below, 

and encourages commenters to submit 

any relevant data or analysis in 

connection with their answers. 

28. Would proposed Rule 15c6–2 

accomplish the stated objectives? Would 

the proposed rule encourage further 

standardization and automation in the 

processing of institutional trades? What 

effect will the proposed rule have on 

improving efficiencies and reducing 

errors and fails? Please provide a basis 

or explanation for your position. 

29. Proposed Rule 15c6–2 uses such 

terms as ‘‘allocation,’’ ‘‘confirmation,’’ 

and ‘‘affirmation.’’ As discussed above, 

the Commission believes that these are 

well understood concepts. Should these 

terms be defined for purposes of the 

proposed rule? If so, please explain 

which terms need further definition and 

why? Please include the recommended 

elements of such definitions. 

30. Similarly, does the term ‘‘end of 

the day on trade date’’ need to be 

defined? If so, please provide 

information as to why and include 

recommended elements of such a 

definition. 

31. Proposed Rule 15c6–2 uses the 

term ‘‘customer.’’ Given that often 

agents of the customer are providing 

allocation, confirmation or affirmation 

instructions or communications to the 

broker-dealer on behalf of the brokerdealer’s customer, does the rule as 

written address this scenario? Does the 

use of the term ‘‘customer’’ sufficiently 

incorporate any and all agents of the 

customer? Is the Commission’s 

understanding of these terms consistent 

with the industry’s use of these terms? 

Why or why not? Should the term 

‘‘customer’’ be defined for purposes of 

Rule 15c6–2? If so, please include the 

recommended elements of such a 

definition. 

32. What effect would proposed Rule 

15c6–2 have on the relationship 

between a broker-dealer and its 

customer? 

33. Do the perceived benefits of 

proposed Rule 15c6–2 or the benefits of 

trade date confirmation and affirmation 

accrue to all participants—brokersdealers (including prime brokers), 

institutional customers, custodians, or 

matching utilities? If not, why? Do they 

accrue differently based on size of the 

entity? Please explain. 

34. Does proposed Rule 15c6–2 

introduce any new risks? If so, please 

describe such risks and whether they 

can be quantified. Can these risks be 

mitigated? If so, how? 

35. If proposed Rule 15c6–2 is 

adopted by the Commission, what 

should be the necessary time frame for 

implementing such a rule? What factors 

should the Commission consider in 

determining the implementation date? 

36. Would proposed Rule 15c6–2 

affect cross-border trading or crossborder trade processing? If so, how 

would it do so? 

37. As proposed, Rule 15c6–2 

excludes exempted securities, 

government securities, municipal 

securities, commercial paper, bankers’ 

acceptances, and commercial bills. For 

those asset classes that do not already 

settle on T+1, should the proposed rule 

apply to any or all of these excluded 

securities? Please discuss the reasons 

why any or all of these securities should 

or should not be excluded from Rule 

15c6–2. 

38. What if anything should the 

Commission do to further facilitate the 

use of standardized industry protocols 

and standardization of reference data by 

broker-dealers and institutional 

customers, including investment 

advisers and custodians? What if 

anything should the Commission do to 

further facilitate efficiency in processing 

institutional trades and reducing errors 

and fails? 

39. Would the adoption of further 

Commission rules be necessary to 

require or further facilitate the objective 

of ensuring that institutional trades are 

operationally capable of settling on a 

T+1 or shorter timeframe? 

40. The T+1 Report indicates that 

market participants may cancel and 

rebill an affirmed trade because of a 

monetary change to the trade and states 

that these instances occur frequently in 

a T+2 settlement cycle.170 Why are 

trades affirmed when monetary amounts 

may not agree? Should it be permissible 

to cancel an affirmed trade? Why or why 

not? 

41. Are investment advisers matching 

their records about a trade against the 

received confirmation prior to 

affirming? If not, why not? If so, what 

criteria are used to determine that a 

‘match’ has occurred? Which fields 

must match? Should financial values, 

such as unit price, total commission, 

accrued interest for fixed-income trades 

and net amount to be paid or received 

be matched? What steps does or should 

the adviser take to ensure the affirming 

party, if not the adviser, is matching 

adviser-provided trade information 

against the broker or dealer 

confirmation before affirming trades? 

42. When matching trade information 

on a given transaction between the 

investment adviser and the brokerdealer, the parties to the transaction 

may view differences, such as 

differences in amounts, as minor and 

therefore within a satisfactory 

‘‘tolerance’’ range to match, whereas in 

other cases a party may be unwilling to 

match if any discrepancy in trade 

information exists. These differences in 

trade information may be perceived to 

be small in absolute terms or relative to 

the size of the trade. Parties also may set 

‘‘tolerance’’ thresholds in their systems 

to ignore some differences, such as trade 

information where an element differs by 

‘‘one penny’’ or less than 0.01% of the 

value being compared. To what extent 

do advisers apply such tolerances when 

matching trades? What fields are subject 

to such tolerance thresholds and what 

size tolerances are generally used? For 

example, if the net money for settlement 

as calculated by the adviser differs from 

the net money for settlement as 

calculated by the broker or dealer as 

part of the confirmation by a dollar, is 

that trade a ‘‘match’’? And if so, which 

value is used for settlement, the amount 

on the confirmation or the adviser’s 

records? Does the other party then 

adjust its records to the amount used for 

settlement? Are investors ever harmed 

by this approach? Is there general 

consensus on tolerances? Are there 

industry groups that define guidelines 

or best practices on the use of tolerances 

and, if so, do they all agree? 

43. Should advisers be expected to 

affirm trades or should this always be a 


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171The UPC is a series of FINRA rules, 

interpretations and explanations designed to make 

uniform, where practicable, custom, practice, usage, 

and trading technique in the investment banking 

and securities business, particularly with regard to 

operational and settlement issues. These can 

include such matters as trade terms, deliveries, 

payments, dividends, rights, interest, reclamations, 

exchange of confirmations, stamp taxes, claims, 

assignments, powers of substitution, computation of 

interest and basis prices, due-bills, transfer fees, 

‘‘when, as and if issued’’ trading, ‘‘when, as and if 

distributed’’ trading, marking to the market, and 

close-out procedures. The UPC was created so that 

the transaction of day-to-day business by members 

may be simplified and facilitated; that business 

disputes and misunderstandings, which arise from 

uncertainty and lack of uniformity in such matters, 

may be eliminated; and that the mechanisms of a 

free and open market may be improved and 

impediments thereto removed. See, e.g., Exchange 

Act Release No. 91789 (May 7, 2021), 86 FR 26084, 

26088 (May 12, 2021). 

172As discussed in Part III.B.1, proposed Rule 

15c6–2 would not apply to an exempted security, 

government security, municipal security, 

commercial paper, bankers’ acceptances, or 

commercial bills. 

173See supra Part III.B (discussing the proposed 

new requirement for ‘‘same-day affirmation’’). 

174See DTCC ITP Forum Remarks, supra note 58 

(stating that up to 70% of institutional trades are 

affirmed by custodians). 

175See proposed Rule 204–2(a)(7)(iii), infra Part 

0. 

176See Rule 204–2(a)(7) (requiring making and 

keeping originals of all written communications 

received and copies of all written communications 

sent by an investment adviser relating to the records 

listed thereunder). But see Rule 204–2(g) 

(permitting advisers to maintain records 

electronically if they establish and maintain 

required procedures). 

function of the broker-dealer or bank 

custodian holding the account where 

securities will be delivered? How 

should the adviser proceed if the 

deadline to notify a broker-dealer or 

bank custodian is approaching yet a 

confirmation has not been received? If 

advisers delay notification of the 

custodian until after affirming the trade 

in such a scenario, will this create 

delays in recalling loaned securities or 

securities that may have been pledged 

as collateral? 

44. In some cases, bank custodians 

may receive a copy of a confirmation (a 

‘‘duplicate confirmation’’) as an early 

alert of potential trade activity. Are 

these duplicate confirmations relied 

upon to affirm the trade information? Do 

custodians ever settle trades based 

solely on information received in a 

duplicate confirmation? Should this 

practice be permitted? Please explain 

why or why not. Do custodians use 

these duplicate confirmations as an 

early alert to call a security back from 

being on loan or to identify a security 

that may be pledged as collateral? 

45. Elements of FINRA Rule 11860 

could be used to help facilitate 

compliance with proposed Rule 15c6–2, 

if adopted. Is proposed Rule 15c6–2 

consistent with the approach to RVP/ 

DVP settlement set forth in FINRA Rule 

11860 and, more generally, the Uniform 

Practice Code (‘‘UPC’’) set forth in the 

FINRA Rule 11000 series? 171 If not, 

please explain. 

46. Should proposed Rule 15c6–2 

have separate requirements and 

deadlines for each step in the allocation, 

affirmation, and confirmation 

processes? And if so, should deadlines 

be relative to a prior dependent activity? 

For example, should allocations be 

communicated within an hour of, or no 

later than three hours after, receipt of 

the notice of execution and affirmations 

be communicated within an hour of, or 

no later than three hours after, receipt 

of the confirmation? Or is it acceptable 

to require end of day for all activity? 

What changes would be recommended 

for a T+0 environment? 

C. Proposed Amendment to 

Recordkeeping Rule for Investment 

Advisers 

Under proposed Rule 15c6–2, a 

broker-dealer would be prohibited from 

entering into a contract on behalf of a 

customer for the purchase or sale of 

certain securities 172 unless it has 

entered into a written agreement with 

the customer that requires the 

allocation, confirmation, affirmation, or 

any combination thereof to be 

completed no later than the end of the 

day on trade date in such form as may 

be necessary to achieve settlement in 

compliance with proposed Rule 15c6– 

1(a).173 Investment advisers, as 

customers of a broker or dealer, may 

become a party to such an agreement. 

Proposed Rule 15c6–2 does not specify 

which party would be obligated to 

provide the necessary allocation, 

confirmation, and affirmation, although 

the Commission understands that, 

generally, the customer (here, the 

investment adviser) customarily 

provides the broker or dealer with 

instructions directing how to allocate 

the securities to be purchased or sold, 

and the broker or dealer confirms the 

trade details, which the adviser, in turn, 

affirms. 

Based on staff experience, the 

Commission believes that advisers 

generally have recordkeeping processes 

that include keeping originals and/or 

electronic copies of such allocations, 

confirmations, and affirmations. 

However, in some instances this may 

not be the case. Some activities, such as 

affirmation, may be performed on the 

adviser’s behalf by a third party, such as 

middle-office outsourcing provider, a 

custodian or a prime broker, and 

advisers may not maintain these 

records.174 In addition, based on staff 

experience, the Commission also 

believes that some advisers do not 

maintain these records or maintain them 

only in paper. Accordingly, the 

Commission is proposing an 

amendment to the investment adviser 

recordkeeping rule designed to ensure 

that registered investment advisers that 

are parties to contracts under proposed 

Rule 15c6–2 retain records of 

confirmations received, and keep 

records of the allocations and 

affirmations sent to a broker or 

dealer.175 Specifically, the Commission 

proposes to amend Rule 204–2 under 

the Investment Advisers Act of 1940 

(the ‘‘Advisers Act’’) by adding a 

requirement in paragraph (a)(7)(iii) that 

advisers maintain records of each 

confirmation received, and any 

allocation and each affirmation sent, 

with a date and time stamp for each 

allocation (if applicable) and affirmation 

that indicates when the allocation or 

affirmation was sent to the broker or 

dealer if the adviser is a party to a 

contract under proposed Rule 15c6–2. 

As with other records required under 

Rule 204–2(a)(7), advisers would be 

required to keep originals of 

confirmations, and copies of allocations 

and affirmations, described in the 

proposed rule, but may maintain 

records electronically if they satisfy 

certain conditions.176

While the Commission believes that 

retaining records of all of these 

documents is important, we understand 

that the timing of communicating 

allocations to the broker or dealer is a 

critical pre-requisite to ensure that 

confirmations can be issued in a timely 

manner, and affirmation is the final step 

necessary for an adviser to acknowledge 

agreement on the terms of the trade or 

alert the broker or dealer of a 

discrepancy. The proposed amendment 

to Rule 204–2 therefore would require 

advisers to time and date stamp records 

of any allocation and each affirmation. 

The proposed time and date stamp for 

these communications would occur 

when they were ‘‘sent to the broker or 

dealer.’’ To meet this proposed 

requirement, an adviser generally 

should time and date stamp records of 

each allocation (if applicable) and 

affirmation to the nearest minute. 

Based on staff experience, the 

Commission believes many advisers 

send allocations and affirmations 

electronically to brokers or dealers, and 

many records are already consistently 

date and time stamped to the nearest 

minute using either a local time zone or 

a centralized time zone, such as 


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177See U.S. Naval Observatory, Systems of Time, 

https://www.cnmoc.usff.navy.mil/Organization/ 

United-States-Naval-Observatory/Precise-TimeDepartment/The-USNO-Master-Clock/Definitionsof-Systems-of-Time/. The Commission understands 

that some firms have systems that date and time 

stamp records with greater precision. Certainly as 

volumes increase and the timeframes to complete 

operational activities, such as settlement, shorten, 

the Commission believes from a practical 

perspective that many firms will find value in 

having increased precision in the time stamps on 

trade-related activities. 

178For additional discussion on this and other 

initial costs and burdens of the proposed 

amendment to Rule 204–2, see infra Part V.C.5.b). 

179See, e.g., Press Release, DTCC, Over 1,800 

Firms Agree to Leverage U.S. Institutional Trade 

Matching Capabilities in DTCC’s CTM (Oct. 12, 

2021), https://www.dtcc.com/news/2021/october/ 

12/over-1800-firms-agree-to-leverage-dtccs-ctm; 

DTCC’s Trade Processing Suite Traffics One Billion 

Trades, Traders Magazine (Feb. 13, 2017), https:// 

www.tradersmagazine.com/departments/clearing/ 

dtccs-trade-processing-suite-traffics-one-billiontrades/. 

180CMSPs are clearing agencies as defined in 

Section 3(a)(23) of the Exchange Act, and as such, 

are required to register as a clearing agency or 

obtain an exemption from registration. The 

Commission has currently exempted three CMSPs 

from the registration requirement. The Commission 

also has adopted rules that apply to both registered 

and exempt clearing agencies, including CMSPs 

operating pursuant to an exemption from 

registration. See, e.g., Regulation Systems 

Compliance and Integrity, Exchange Act Release 

No. 73639 (Nov. 19, 2014), 79 FR 72252 (Dec. 5, 

2014) (‘‘Regulation SCI Adopting Release’’). 

coordinated universal time, or 

‘‘UTC.’’ 177 The Commission believes 

that date and time stamping these 

records to the nearest minute would 

evidence that the advisers have met 

their obligations to timely achieve a 

matched trade. 

The Commission recognizes that 

requiring these records and adding time 

and date stamps to records would, 

however, add additional costs and 

burdens for those advisers that do not 

currently maintain these records or do 

not use electronic systems to send 

allocations and affirmations to brokers 

or dealers or maintain confirmations. 

For example, some advisers may incur 

costs to update their processes to 

accommodate these records. For 

advisers that use third parties to 

perform or communicate allocations or 

affirmations, they also could incur costs 

associated with directing the third 

parties to electronically copy the adviser 

on any allocations or affirmations.178

We believe that requiring these 

records and requiring a time and date 

stamp of all affirmations and any 

applicable allocations (but not 

confirmations) would help advisers 

establish that they have timely met 

contractual obligations under proposed 

Rule 15c6–2 and ultimately help ensure 

that trades involving such advisers 

would timely settle on T+1. In addition, 

we believe the proposed requirement 

would aid the Commission staff in 

preparing for examinations of 

investment advisers and assessing 

adviser compliance. 

1. Request for Comment 

We request comment on the proposed 

amendment to the investment adviser 

recordkeeping rule: 

47. Should the Commission amend 

Rule 204–2 to specifically correspond to 

the proposed Rule 15c6–2 and require 

advisers that are parties to contracts 

under proposed Rule 15c6–2 to retain 

records of the documents described in 

that rule? 

48. Should the Commission require 

that these records be retained under a 

different provision of the recordkeeping 

rule? For example, should the 

Commission instead amend Rule 204– 

2(a)(3) (requiring advisers to retain 

‘‘memorandums’’ of orders) to explicitly 

include these records? If so, the 

determination of whether to maintain 

the relevant allocations, confirmation, 

and affirmations would depend on if 

they were part of an ‘‘order.’’ Given that 

certain orders may never be executed, 

and that certain executed trades 

potentially might not have orders 

associated with them, would including 

the requirement in the recordkeeping 

requirement related to ‘‘orders’’ result in 

advisers not retaining some allocations, 

confirmations, and affirmations? 

Separately, would maintaining the 

proposed records under Rule 204– 

2(a)(3) create confusion about whether 

advisers need to maintain originals and/ 

or duplicate copies of relevant 

allocations, confirmations, and 

affirmations, when the specified record 

is the memorandum? Or, do advisers 

currently maintain records of 

allocations, confirmations, and 

affirmations under this provision to 

document the orders they describe in 

the memoranda? 

49. Should the Commission require 

time and date stamping of the 

allocations and affirmations to the 

nearest minute, as proposed? Would 

advisers need to make system changes 

to accomplish such time and date 

stamping of allocations and 

affirmations? Is there an approach other 

than time and date stamping that would 

allow Commission staff to verify that an 

adviser has completed the steps 

necessary to facilitate settlement in a 

timely manner? Should the Commission 

require time and date stamping of just 

the affirmation or just the allocation? Is 

the requirement to time and date stamp 

the allocation or affirmation when it is 

‘‘sent to the broker or dealer’’ clear? 

Should we require the time and date 

stamp at a different point in time? If so, 

when? 

50. Should we require time and date 

stamping of receipt of the confirmation 

as well? What additional costs or 

burdens would such time stamping 

incur? 

51. Under what circumstances do 

third parties, such as prime brokers or 

custodians, affirm trades instead of 

advisers, and in those instances do the 

third parties send copies of the 

affirmations to the advisers? Does this 

happen for all accounts an adviser 

manages or only some accounts and 

why? 

52. If advisers are matching adviser 

records to confirmations, some trades 

will not match. In other instances, an 

adviser may receive a confirmation for 

a trade that the adviser does not 

‘‘know,’’ such as when an adviser did 

not execute a trade or when the 

adviser’s trading desk has not notified 

the adviser’s middle or back office. In 

such cases, do advisers proactively 

notify the broker-dealer that the trade 

does not match (often referred to as 

‘‘don’t know’’ or sending a ‘‘DK’’)? 

Should the proposed rule be more 

specific about recordkeeping when an 

adviser does not agree with or does not 

‘‘know’’ a trade for which a 

confirmation was received? How often 

do trades not match? How frequently do 

advisers receive confirmations they do 

not ‘‘know?’’ 

D. New Requirement for CMSPs To 

Facilitate Straight-Through Processing 

Because of the rising volume of 

transactions for which CMSPs provide 

matching and other services,179 CMSPs 

have become increasingly critical to the 

functioning of the securities market.180

As described in Part II.B.1, CMSPs 

facilitate communications among a 

broker-dealer, an institutional investor 

or its investment adviser, and the 

institutional investor’s custodian to 

reach agreement on the details of a 

securities transaction, enabling the trade 

allocation, confirmation, affirmation, 

and/or the matching of institutional 

trades. Once the trade details have been 

agreed among the parties or matched by 

the CMSP, the CMSP can then facilitate 

settlement of the transaction. 

While the introduction of new 

technologies and streamlined operations 

such as those offered by CMSPs have 

improved the efficiency of post-trade 

processing over time, the Commission 

believes more should be done to 

facilitate further improvements, 

particularly with respect to the 

processing of institutional trades. 

Currently, some SRO rules require the 

use of CMSP services for institutional 


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181See e.g., FINRA Rule 11860 (requiring a 

broker-dealer to use a registered clearing agency, a 

CMSP, or a qualified vendor to complete deliveryversus-payment transactions with their customers). 

182T+2 Proposing Release, supra note 30, at 

69258. 

183See T+1 Report, supra note 18, at 9. 

184See SIA Business Case Report, supra note 21, 

at app. E (defining ‘‘straight-through processing’’). 

185See, e.g., DTCC, About DTCC Institutional 

Trade Processing, https://www.dtcc.com/about/ 

businesses-and-subsidiaries/dtccitp (noting that 

DTCC ITP, parent to DTCC ITP Matching, serves 

6,000 financial services firms in 52 countries). 

186As discussed in Part III.B.2, the T+1 Report 

contemplates moving the ‘‘ITP Affirmation Cutoff’’ 

from 11:30 a.m. on the day after trade date to 9:00 

p.m. on trade date. See supra note 164. Proposed 

Rule 17Ad–27 is consistent with, and should help 

promote, efforts to shorten the processing time for 

institutional trades in a T+1 environment. 

trade processing.181 The Commission 

has previously explained that a 

shortened settlement cycle may lead to 

expanded use of CMSPs, as well as 

increased focus on enhancing the 

services and operations of the CMSPs 

themselves.182 In particular, the 

Commission believes that eliminating 

the use of tools that encourage or 

require manual processing, alongside 

the continued development and 

implementation of more efficient 

automated systems in the institutional 

trade processing environment, is 

essential to reducing risk and costs to 

ensure the prompt and accurate 

clearance and settlement of securities 

transactions.183 Below is a discussion of 

the elements of the proposed rule. 

1. Policies and Procedures To Facilitate 

Straight-Through Processing 

Proposed Rule 17Ad–27 would 

require a CMSP to establish, implement, 

maintain and enforce policies and 

procedures to facilitate straight-through 

processing for transactions involving 

broker-dealers and their customers. 

The term ‘‘straight-through 

processing’’ generally refers to processes 

that allow for the automation of the 

entire trade process from trade 

execution through settlement without 

manual intervention.184 In the context 

of institutional trade processing under 

this rule, straight-through processing 

occurs when a market participant or its 

agent uses the facilities of a CMSP to 

enter trade details and completes the 

trade allocation, confirmation, 

affirmation, and/or matching processes 

without manual intervention. Under the 

rule, a CMSP facilitates straight-through 

processing when its policies and 

procedures enable its users to minimize 

or eliminate, to the greatest extent that 

is technologically practicable, the need 

for manual input of trade details or 

manual intervention to resolve errors 

and exceptions that can prevent 

settlement of the trade. A CMSP also 

facilitates straight-through processing 

when it enables, to the greatest extent 

that is technologically practicable, the 

transmission of messages regarding 

errors, exceptions, and settlement status 

information among the parties to a trade 

and their settlement agents. Under the 

rule, policies and procedures generally 

should establish a holistic framework 

for facilitating straight-through 

processing, as just described, on a 

CMSP-wide basis. CMSPs should also 

generally consider and address how the 

services, systems, and any operational 

requirements a CMSP applies to its 

users ensure that the CMSP’s policies 

and procedures advance the goal of 

achieving straight-through processing 

for trades processed through it. For 

example, a CMSP’s policies and 

procedures generally should explain the 

criteria that the CMSP applies to 

determine when a ‘‘match’’ has been 

achieved, including any relevant 

tolerances that it or its users might 

apply to achieve a match, and the extent 

to which such criteria should be 

standardized or customized. With 

respect to the use of electronic trade 

confirmation services, which often rely 

on legacy technologies, a CMSP’s 

policies and procedures generally 

should establish a timeline for 

transitioning users away from manual 

processes to matching services that 

reduce a party’s reliance on the manual, 

often sequential, entry and 

reconciliation of trade information. 

The Commission believes that 

increasing the efficiency of using a 

CMSP can reduce the risk that a trade 

will fail to settle, as well as the costs 

associated with correcting errors that 

result from the use of manual processes 

and data entry, thereby improving the 

overall efficiency of the National C&S 

System. CMSPs have become 

increasingly connected to a wide variety 

of market participants in the U.S.,185

increasing the need to reduce risks and 

inefficiencies that may result from use 

of a CMSP’s services. Because the 

proposed rule would preclude reliance 

on service offerings at CMSPs that rely 

on manual processing, the Commission 

preliminarily believes the proposed rule 

will better position CMSPs to provide 

services that not only reduce risk 

generally but also help facilitate an 

orderly transition to a T+1 standard 

settlement cycle,186 as well as potential 

further shortening of the settlement 

cycle in the future. 

The Commission has taken a ‘‘policies 

and procedures’’ approach in 

developing the proposed rule because it 

preliminarily believes such an approach 

will remain effective over time as 

CMSPs consider and offer new 

technologies and operations to improve 

the settlement of institutional trades. 

The Commission also believes that 

improving the CMSP’s systems to 

facilitate straight-through processing 

can help market participants consider 

additional ways to make their own 

systems more efficient. In addition, a 

‘‘policies and procedures’’ approach can 

help ensure that a CMSP considers in a 

holistic fashion how the obligations it 

applies to its users will advance the 

implementation of methodologies, 

operational capabilities, systems, or 

services that support straight-through 

processing. 

In considering how to develop 

policies and procedures that facilitate 

straight-through processing, a CMSP 

generally should consider the full range 

of operations and services related to the 

processing of institutional trades for 

settlement. For example, as noted above, 

the CMSP often acts as a 

communication platform for different 

market participants to transmit 

messages regarding errors, exceptions, 

and settlement status information 

among the parties to a trade and their 

settlement agents. Under proposed Rule 

17Ad–27, a CMSP also generally should 

consider the extent to which its policies, 

procedures, and processes restrict, 

inhibit, or delay the ability of users to 

transmit such messages to any agent that 

assists said users in preparing or 

submitting the trade for settlement. In 

the Commission’s view, the CMSP 

generally should consider having 

policies and procedures that promote 

the onward transmission of messages 

among the relevant parties to a 

transaction to ensure timely settlement 

and reduce the potential for errors. 

Similarly, in structuring its process for 

submitting transactions for settlement, 

the CMSP generally should consider 

ensuring that its systems, operational 

requirements, and the other choices it 

makes in designing its services enable 

and incentivize prompt and accurate 

settlement without manual intervention. 

As explained above, the Commission 

recognizes it may not be technologically 

or operationally practicable to eliminate 

all manual processes immediately. 

Indeed, the Commission believes that in 

certain circumstances, the parties to a 

trade may need to engage in manual 

interventions to ensure the accuracy of 

trade information and minimize 

operational or other risks that may 

prevent settlement, and proposed Rule 

17Ad–27 does not require CMSPs to 

remove a manual processes if doing so 

would clearly undermine the prompt 

and accurate clearance and settlement of 


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187This requirement would be implemented by 

including a cross-reference to Regulation S–T in 

proposed Rule 17Ad–27, and by revising Regulation 

S–T to include the proposed straight-through 

processing reports. Pursuant to Rule 301 of 

Regulation S–T, the EDGAR Filer Manual is 

incorporated by reference into the Commission’s 

rules. In conjunction with the EDGAR Filer Manual, 

Regulation S–T governs the electronic submission 

of documents filed with the Commission. 188See 17 CFR 240.24b–2. 

189See Release No. 33–10514 (June 28, 2018), 83 

FR 40846, 40847 (Aug. 16, 2018). Inline XBRL 

allows filers to embed XBRL data directly into an 

HTML document, eliminating the need to tag a copy 

of the information in a separate XBRL exhibit. Id. 

at 40851. 

securities transactions. However, 

pursuant to the policies and procedures 

approach described above, where a 

CMSP continues to permit manual 

reconciliation or other types of human 

intervention, it generally should explain 

in its policies and procedures why those 

manual processes remain necessary as 

part of its systems and processes. In 

addition, the CMSP should consider 

developing processes that ultimately 

would eliminate the underlying issues 

that drive the use of manual processes 

in order to facilitate a more automated 

approach. 

2. Annual Report on Straight-Through 

Processing 

Proposed Rule 17Ad–27 also would 

require a CMSP to submit every twelve 

months to the Commission a report that 

describes the following: (a) The CMSP’s 

current policies and procedures for 

facilitating straight-through processing; 

(b) its progress in facilitating straightthrough processing during the twelve 

month period covered by the report; and 

(c) the steps the CMSP intends to take 

to facilitate and promote straightthrough processing during the twelve 

month period that follows the period 

covered by the report. The Commission 

preliminarily intends to make this 

annual report publicly available on its 

website to enable the public to review 

and analyze progress on achieving 

straight-through processing. A CMSP 

would submit this report to the 

Commission using the Commission’s 

Electronic Data Gathering, Analysis, and 

Retrieval system (‘‘EDGAR’’), and would 

tag the information in the report using 

the structured (i.e., machine-readable) 

Inline eXtensible Business Reporting 

Language (‘‘XBRL’’).187

The Commission believes that the 

proposed reporting requirement would 

enable the Commission to evaluate 

actions taken by the CMSP to ensure 

compliance with the rule and to help 

fulfill the Commission’s responsibility 

for oversight of the National C&S 

System, both as it relates to the CMSP 

specifically and the National C&S 

System more generally. The proposed 

requirement would also inform the 

Commission and the public, particularly 

the direct and indirect users of the 

CMSP, as to the progress being made 

each year to advance implementation of 

straight-through processing with respect 

to the allocation, confirmation, 

affirmation, and matching of 

institutional trades, the communication 

of messages among the parties to the 

transactions, and the availability of 

service offerings that reduce or 

eliminate the need for manual 

processing. In particular, the 

Commission preliminarily believes that 

a CMSP generally should include in its 

report a summary of key settlement data 

relevant to its straight-through 

processing objective. Such data could 

include the rates of allocation, 

confirmation, affirmation, and/or 

matching achieved via straight-through 

processing. In describing its progress in 

facilitating straight-through processing, 

the CMSP could also identify common 

or best practices that facilitate straightthrough processing. In addition, after 

the CMSP has submitted its initial 

report, in subsequent years a CMSP 

generally should include in its report an 

assessment of how its progress in 

facilitating straight-through processing 

during the twelve month period covered 

by the report under paragraph (b) 

compares to the steps it intended to take 

to facilitate straight-through processing 

under paragraph (c) from the prior 

year’s report. 

Because this information would be 

useful to the industry and the general 

public in considering potential ways to 

increase the availability of straightthrough processing, the Commission 

believes that the report should be made 

public. The Commission preliminarily 

believes that the proposed requirement 

generally would not require the 

disclosure of proprietary information, 

trade secrets, or personally identifiable 

information. To the extent that an 

annual report includes confidential 

commercial or financial information, a 

CMSP could request confidential 

treatment of those specific portions of 

the report.188

As the National C&S System 

continues to evolve, the Commission 

believes that CMSPs will continue to 

play an increasingly critical role in 

efforts to facilitate the prompt and 

accurate clearance and settlement of 

securities transactions and to eliminate 

inefficient and costly procedures that 

effect the settlement of securities 

transactions, particularly institutional 

transactions. Furthermore, because of 

the CMSP’s role in submitting matched 

or confirmed and affirmed trades for 

overnight positioning of settling 

transactions, the Commission believes 

that a CMSP generally should evaluate 

how it participates in that process and 

consider how it can support 

improvements to the timing and manner 

of settlement obligations (e.g., intraday) 

to increase efficiency in the National 

C&S System. 

Requiring CMSPs to file the reports on 

EDGAR would provide the Commission 

and the public with a centralized, 

publicly accessible electronic database 

for the reports, facilitating the use of the 

reported data on straight-through 

processing. Moreover, requiring Inline 

XBRL tagging of the reported 

disclosures, which would specifically 

comprise an Inline XBRL block text tag 

for each of the three required narrative 

disclosures as well as detail tags for 

individual data points, would make the 

disclosures more easily available and 

accessible to and reusable by market 

participants and the Commission for 

retrieval, aggregation, and comparison 

across different CMSPs and time 

periods, as compared to an unstructured 

PDF, HTML, or ASCII format 

requirement for the reports.189 Detail 

tags could be helpful to the extent the 

reports disclose individual data points, 

including the rates of allocation, 

confirmation, affirmation, and/or 

matching achieved via straight-through 

processing. 

The Commission is proposing a 12- 

month requirement in the rule because 

the Commission preliminarily believes 

that a yearly review and report on 

progress with respect to straight-through 

processing is the appropriate timescale 

on which the CMSP should consider, 

develop, and implement iterative 

improvements over time, while also 

ensuring that progress towards straightthrough processing is expeditious. 

Specifically, a 12-month period would 

provide the CMSP with a sufficient 

look-back period to complete a 

meaningful review on an organizationwide basis and time to test and 

implement material changes to 

technologies and procedures. An annual 

reporting requirement, as opposed to a 

monthly or semi-annual requirement, 

should help ensure that the information 

provided to the Commission reflects 

meaningful and substantive progress by 

the CMSP, as opposed to focusing the 

Commission’s attention on smaller, 

technical changes in services and 

policies that would be less relevant to 

improving the Commission’s 

understanding of the overall progress 

towards achieving straight-through 

processing by the CMSP. The 


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190See supra note 171 and accompanying text 

(describing the UPC). 

191See supra note 32 (providing citations to the 

exemptive orders for DTCC ITP Matching, BSTP, 

and SS&C). 

192Exchange Act Release No. 39829 (Apr. 6, 

1998), 63 FR 17943, 17947 (Apr. 13, 1998) 

(‘‘Matching Release’’). 

Commission believes that the reporting 

requirement should continue 

indefinitely because changes in 

technology will require ongoing review 

and consideration of how such changes 

might impact policies and procedures to 

facilitate straight-through processing. 

3. Request for Comment 

The Commission requests comment 

on all aspects of proposed Rule 17Ad– 

27, as well as the following specific 

topics: 

53. Is the proposed policies and 

procedures approach appropriate and 

sufficient to achieve the proposed rule’s 

stated objectives? Why or why not? 

Would more specific or directive 

requirements, such as those discussed 

above be more effective at facilitating 

straight-through processing than the 

proposed policies and procedures 

approach? Please explain why or why 

not. 

54. Is proposed Rule 17Ad–27 

consistent with the approach to RVP/ 

DVP settlement set forth in FINRA Rule 

11860 and, more generally, the UPC set 

forth in the FINRA Rule 11000 

series? 190 If not, please explain. 

55. Is the proposed use of the term 

‘‘straight-through processing’’ clear and 

understandable? Why or why not? 

Should the Commission define the term 

for purposes of the proposed rule? If so, 

please describe the elements that the 

Commission should consider including 

in the definition to make it clear and 

understandable. 

56. Should the Commission require a 

CMSP to enable the users of its service 

to complete the matching, confirmation, 

or affirmation of securities transactions 

as soon as technologically practicable? 

Alternatively, should the Commission 

impose a specific deadline on such a 

requirement, such as requiring that 

these processes be completed within a 

certain number of minutes or hours? 

Should the Commission require specific 

deadlines, when using a CMSP, for 

completing each of the allocation, 

confirmation, affirmation, or matching 

processes? Why or why not? If the 

Commission were to impose a specific 

deadline, what would be the 

appropriate deadline for each process— 

allocation, confirmation, affirmation, 

and matching? 

57. Should the Commission require a 

CMSP to forward or otherwise submit a 

transaction for settlement as soon as 

technologically and operationally 

practicable, as if using fully automated 

systems? Should the Commission 

specify to whom a CMSP should 

forward such information to facilitate 

straight-through processing? To what 

extent do CMSPs not forward such trade 

information as soon as technologically 

practicable? Are certain parties 

excluded? What are the reasons 

preventing such forwarding of trade 

information? 

58. Is it appropriate for proposed Rule 

17Ad–27 to require a CMSP to retire any 

electronic trade confirmation services, 

where the users of a CMSP may transmit 

sequential messages back and forth to 

achieve allocation, confirmation, and 

affirmation of a transaction? If so, 

should the rule be modified to 

accommodate electronic trade 

confirmation services offered by 

CMSPs? Why or why not? 

59. More generally, are electronic 

trade confirmation services consistent 

with the concept of ‘‘straight-through 

processing?’’ Why or why not? Please 

explain. 

60. With regard to the proposed 

requirement for a CMSP to provide an 

annual report, does the proposed rule 

include the appropriate aspects or level 

of detail that should be included in such 

a report? Why or why not? Should the 

Commission require that the public 

report be issued in a machine-readable 

data language? Why or why not? 

61. Are the time periods (i.e., every 12 

months) described in the rule 

concerning the submission and content 

of the annual report sufficiently clear? If 

not, please explain. 

62. Should a CMSP be required to tag 

its annual report using Inline XBRL? 

Why or why not? Rather than requiring 

block text tags for the narrative 

disclosures as well as detail tags of 

individual data points (including those 

nested within the narrative disclosures), 

should we only require block text tags 

for the narrative disclosures? Should the 

annual report be tagged in an open 

structured data language other than 

Inline XBRL? If so, what open 

structured data language should be used 

and why? 

63. Is EDGAR an appropriate 

submission mechanism for the annual 

report? Why or why not? Should the 

Commission use an alternative 

submission mechanism, such as the 

Electronic Form Filing System 

(‘‘EFFS’’)? An EFFS submission 

requirement would not be compatible 

with a requirement to use Inline XBRL 

or other open structured data language 

for the annual report. 

64. Should the Commission make 

public the annual report required to be 

submitted to the Commission under the 

proposed rule? Why or why not? Would 

making the report public alter the type 

or detail of information included by the 

CMSP in the report or in its policies and 

procedures? If so, why? If the public 

availability of any information required 

under the proposed rule would raise 

issues related to confidentiality or the 

proprietary nature of the CMSP’s 

operations, please explain. 

65. CMSPs generally allow their users 

to define the criteria that will constitute 

a ‘‘match,’’ and the users may set 

different tolerances under those criteria 

depending on their business strategy. 

Should a CMSPs be required to disclose 

in the annual report its matching 

criteria? Should a CMSP be required to 

disclose data regarding confirmations, 

affirmations, and/or matches in its 

annual report, such as the percentage of 

successful confirmations, affirmations, 

and/or matches achieved on trade date, 

or the average time users take to achieve 

confirmation, affirmation, and/or a 

match from trade submission? Should a 

CMSP be required to disclose any other 

data to help facilitate straight-through 

processing, such as average time to 

submit a trade to a registered clearing 

agency for settlement, or the average 

number of messages that a CMSP 

transmits among the parties to a trade 

before the trade is submitted to a 

registered clearing agency for 

settlement? Please explain. 

66. More generally, should CMSPs be 

required to make their policies and 

procedures for straight-through 

processing public? Please explain why 

or why not? 

67. The Commission has issued 

exemptive orders for three CMSPs, 

pursuant to which each CMSP is subject 

to a series of operational and 

interoperability conditions.191 Should 

the Commission amend the respective 

exemptive orders to add conditions 

similar to the proposed requirements in 

Rule 17Ad–27 instead of adopting this 

proposal? Why or why not? 

68. In the Matching Release, the 

Commission stated that, even though 

matching services fall within the 

Exchange Act definition of ‘‘clearing 

agency,’’ it was of the view that an 

entity that limits its clearing agency 

functions to providing matching 

services need not be subject to the full 

panoply of clearing agency 

regulation.192 The Commission offered 

two alternative approaches for 

regulation: Limited registration or 

conditional exemptions. Since the 

Matching Release, the Commission has 

approved three conditional exemptions 


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193See, e.g., BSTP and SS&C Order, supra note 

32, at 75397–400 (noting the Commission’s interest 

in facilitating competition among CMSPs). 

194 17 CFR 242.204. 

195For purposes of Regulation SHO, the term 

‘‘participant’’ has the same meaning as in Section 

3(a)(24) of the Exchange Act, 15 U.S.C. 78c(a)(24). 

See Amendments to Regulation SHO, Exchange Act 

Release No. 60388 (July 27, 2009), 74 FR 38266, 

38268 n.34 (July 31, 2009) (‘‘Rule 204 Adopting 

Release’’). Section 3(a)(24) of the Exchange Act 

defines ‘‘participant’’ to mean, when used with 

respect to a clearing agency, any person who uses 

a clearing agency to clear or settle securities 

transactions or to transfer, pledge, lend, or 

hypothecate securities. Such term does not include 

a person whose only use of a clearing agency is (A) 

through another person who is a participant or (B) 

as a pledgee of securities. 

196 17 CFR 242.204(a). 

197 Id. 

198See 17 CFR 242.204(g)(1). 

199See 17 CFR 242.204(a)(1), (a)(3). 

200See 17 CFR 242.200(g). 

201See 17 CFR 242.200(g)(1). 

202See Rule 204 Adopting Release, supra note 

195, at n.55. 

203See id.; see also 17 CFR 242.200(c). 

for CMSPs, as noted in the above 

question, with the goal of facilitating 

competition in the provision of 

matching services.193 Has the 

Commission’s approach to the 

regulation of CMSPs facilitated 

competition in the provision of 

matching services? If so, why or why 

not? To what extent does competition 

among CMSPs help promote either a 

shortened settlement cycle or straightthrough processing? Please explain. 

69. Are there any other steps that the 

Commission should take to enhance the 

ability of the CMSPs to promote 

straight-through processing or increase 

efficiency in the settlement of securities 

transactions? 

E. Impact on Certain Commission Rules 

and Guidance and SRO Rules 

The proposed rules and rule 

amendments may affect compliance 

with other existing Commission rules 

and guidance that reference the 

settlement cycle or settlement processes 

in establishing requirements for market 

participants. Below is a preliminary list 

of rules identified by the Commission. 

The Commission preliminarily believes 

that no changes to these rules are 

necessary to adopt the proposed rules. 

The Commission solicits comment on 

the potential impacts of shortening the 

settlement cycle to T+1 on each of the 

below rules. 

1. Regulation SHO Under the Exchange 

Act 

As with the adoption of a T+2 

standard settlement cycle, several 

provisions of Regulation SHO may be 

impacted by shortening the settlement 

cycle to T+1 because certain provisions 

use ‘‘trade date’’ and ‘‘settlement date’’ 

to determine the timeframes for 

compliance relating to sales of equity 

securities and fails to deliver on 

settlement date. Since these references 

are not to a particular settlement cycle 

(e.g., ‘‘T+2’’), the timeframes for these 

provisions change in tandem with 

changes in the standard settlement 

cycle. 

(a) Rule 204 

Shortening the standard settlement 

cycle to T+1 would reduce the 

timeframes to effect the closeout of a 

fail-to-deliver position under 17 CFR 

242.204 (‘‘Rule 204’’).194 Under Rule 

204,195 a participant of a registered 

clearing agency must deliver securities 

to a registered clearing agency for 

clearance and settlement on a long or 

short sale in any equity security by 

settlement date, or if a participant has 

a fail-to-deliver position, the participant 

shall, by no later than the beginning of 

regular trading hours on the applicable 

closeout date, immediately close out the 

fail-to-deliver position by borrowing or 

purchasing securities of like kind and 

quantity.196

The applicable closeout date for a failto-deliver position differs depending on 

whether the position results from a 

short sale, a long sale, or bona fide 

market making activity. If a fail-todeliver position results from a short 

sale, the participant must close out the 

fail-to-deliver position by no later than 

the beginning of regular trading hours 

on the settlement day following the 

settlement date.197 Under the current 

T+2 standard settlement cycle, the 

applicable closeout date for short sales 

is required by the beginning of regular 

trading hours on T+3. In a T+1 

settlement cycle, the existing closeout 

requirement for fail-to-deliver positions 

resulting from short sales would be 

reduced from T+3 to T+2.198

If a fail-to-deliver position results 

from a long sale or bona fide market 

making activity, the participant must 

close out the fail-to-deliver position by 

no later than the beginning of regular 

trading hours on the third consecutive 

settlement day following the settlement 

date.199 Under the current T+2 standard 

settlement cycle, the closeout for long 

sales or bona fide market making 

activity is required by the beginning of 

regular trading hours on T+5. If the 

Commission adopts a T+1 standard 

settlement cycle, this closeout 

requirement would be shortened from 

T+5 to T+4. 

(b) Rule 200(g) 

Shortening the standard settlement 

cycle to T+1 may also impact the 

application of 17 CFR 242.200(g) (‘‘Rule 

200(g)’’). Specifically, a T+1 settlement 

cycle may change when a broker-dealer 

would need to initiate a bona fide recall 

of a loaned security to be able to mark 

the sale of such loaned but recalled 

security ‘‘long’’ for purposes of Rule 

200(g)(1). Under Rule 200(g), a brokerdealer must mark all sell orders of any 

equity security as ‘‘long,’’ ‘‘short,’’ or 

‘‘short exempt.’’ 200 Rule 200(g)(1) 

stipulates that a broker-dealer may only 

mark a sale as ‘‘long’’ if the seller is 

‘‘deemed to own’’ the security being 

sold under 17 CFR 242.200 (a) through 

(f) and either (i) the security is in the 

broker-dealer’s physical possession or 

control; or (ii) it is reasonably expected 

that the security will be in the brokerdealer’s possession or control by 

settlement of the transaction.201

The Commission has provided 

guidance on when a person that sells a 

loaned but recalled security would be 

‘‘deemed to own’’ the security and be 

able to mark the sale ‘‘long.’’ 202 The 

guidance was given when the standard 

settlement cycle was T+3. Under those 

circumstances, the Commission 

indicated that, if a person that has 

loaned a security to another person sells 

the security and a bona fide recall of the 

security is initiated within two business 

days after trade date, the person that has 

loaned the security will be ‘‘deemed to 

own’’ the security for purposes of Rule 

200(g)(1), and such sale will not be 

treated as a short sale for purposes of 

Rule 204. The Commission also stated 

that a broker-dealer may mark such 

orders as ‘‘long’’ sales provided such 

marking is also in compliance with Rule 

200(c) of Regulation SHO, and thus the 

closeout requirement of Rule 204.203

This guidance was predicated on the 

Commission’s belief that, under then 

current industry standards, recalls for 

loaned securities would likely be 

delivered within three business days 

after the initiation of a recall. In that 

case, a broker-dealer that initiated a 

bona fide recall by T+2 would receive 

delivery of loaned securities by T+5 and 

then be able to close out any failure to 

deliver on a ‘‘long’’ sale of the loaned 

but recalled securities by the beginning 

of regular trading hours on T+6, as then 

required by Rule 204 in a T+3 

environment. 

Under a T+2 standard settlement 

cycle, the closeout period for sales 

marked ‘‘long’’ is T+5, and so recalls of 

loaned securities need to be delivered 

by T+4 to be available to close out any 

fails on sales marked ‘‘long’’ by the 

beginning of regular trading hours on 


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204See T+1 Report, supra note 18, at 24–25. 

205For purposes of this release, the term 

‘‘financial responsibility rules’’ includes any rule 

adopted by the Commission pursuant to Sections 8, 

15(c)(3), 17(a) or 17(e)(1)(A) of the Exchange Act, 

any rule adopted by the Commission relating to 

hypothecation or lending of customer securities, or 

any rule adopted by the Commission relating to the 

protection of funds or securities. The Commission’s 

broker-dealer financial responsibility rules include 

17 CFR 240.15c3–1, 15c3–3, 17a–3, 17a–4, 17a–5, 

17a–11, and 17a–13. 

206 17 CFR 240.15c3–3(m). 

207However, paragraph (m) of Rule 15c3–3 

provides that the term ‘‘customer’’ for the purpose 

of paragraph (m) does not include a broker or dealer 

who maintains an omnibus credit account with 

another broker or dealer in compliance with Rule 

7(f) of Regulation T (12 CFR 220.7(f)). 

208 17 CFR 240.15c3–1(c)(9). 

T+5. To meet this timeframe, a number 

of broker-dealers have securities lending 

agreements that set the period of 

delivery for delivering loaned but 

recalled securities to two settlement 

days after initiation of a recall. Under 

such an agreement, a bona fide recall by 

no later than T+2 would result in the 

delivery of such loaned securities by 

T+4 and in time to close out any fails 

on sales marked long by the beginning 

of regular trading hours on T+5. For 

those broker-dealers that lend securities 

pursuant to securities lending 

agreements that have a recall period of 

three business days after recall, a 

broker-dealer would need to initiate a 

bona fide recall by T+1 to receive 

delivery of the loaned security by T+4 

and in time to close out any fails on 

sales marked long by the beginning of 

regular trading hours on T+5. 

If a T+1 settlement cycle is 

implemented, closeout of a failure of a 

sale marked ‘‘long’’ would be required 

by the beginning of regular trading 

hours on T+4. With this further 

shortened timeframe, recalls of loaned 

securities would need to be delivered by 

T+3 to be available to close out any fails 

on sales marked ‘‘long’’ by the 

beginning of regular trading hours on 

T+4. Accordingly, under a T+1 

settlement cycle, broker-dealers that 

lend securities pursuant to a recall 

period of three business days would 

need to initiate a bona fide recall on 

trade date (i.e., T+0), and those brokers 

that lend securities pursuant to a recall 

period of two business days would need 

to initiate a bona fide recall by T+1, in 

order to close out any failure to deliver 

on sales marked ‘‘long’’ by the 

beginning of regular trading hours in 

T+4. The Commission understands, 

however, that under a T+1 standard 

settlement cycle, at least some brokerdealers would be likely to modify their 

securities lending agreements to shorten 

the recall period to one settlement day 

after the initiation of the recall.204

Under such agreements, a bona fide 

recall would need to be initiated by T+2 

in order to meet the applicable closeout 

period for long sales. Figure 4 provides 

a diagram of close-out scenarios in a 

T+1 environment. 

2. Financial Responsibility Rules Under 

the Exchange Act 

Certain provisions of the 

Commission’s broker-dealer financial 

responsibility rules 205 reference 

explicitly or implicitly the settlement 

date of a securities transaction. For 

example, paragraph (m) of Exchange Act 

Rule 15c3–3 references the settlement 

date to prescribe the timeframe in which 

a broker-dealer must complete certain 

sell orders on behalf of customers.206

Specifically, Rule 15c3–3(m) provides 

that if a broker-dealer executes a sell 

order of a customer (other than an order 

to execute a sale of securities which the 

seller does not own) and if for any 

reason whatever the broker-dealer has 

not obtained possession of the securities 

from the customer within ten business 

days after the settlement date, the 

broker-dealer must immediately close 

the transaction with the customer by 

purchasing securities of like kind and 

quantity.207 In addition, settlement date 

is incorporated into paragraph (c)(9) of 

Exchange Act Rule 15c3–1,208 which 


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209 17 CFR 240.15c3–1(a)(2)(i), (a)(2)(v). 

210 17 CFR 240.15c3–3(k)(1)(iii), (k)(2)(i)–(ii). 

211 17 CFR 240.17a–5(e)(1)(A). 

212 17 CFR 240.17a–13(a)(3). 

213See Broker-Dealers; Maintenance of Certain 

Basic Reserves, Exchange Act Release No. 9856 

(Nov. 10, 1972), 37 FR 25224 (Nov. 29, 1972) (‘‘Rule 

15c3–3 Adopting Release’’). 

214See infra Part V.C.3 (discussing the economic 

implications of shortening the settlement cycle on 

Rule 15c3–3). 

215 17 CFR 240.10b–10. 216See Confirmation Requirements for 

Transactions of Security Futures Products Effected 

in Futures Accounts, Exchange Act Release No. 

46471 (Sept. 6, 2002), 67 FR 58302, 58303 (Sept. 13, 

2002). 217See 17 CFR 240.10b–10(d)(2). 218See 17 CFR 240.15c1–1(b). 

219T+3 Adopting Release, supra note 9, at 52908. 

220T+2 Adopting Release, supra note 10, at 

15579. 

221See supra Part III.B.1 (discussing the 

relationship between a ‘‘confirmation’’ under 

proposed Rule 15c6–2 and existing Rule 10b–10). 

222See generally Use of Electronic Media for 

Delivery Purposes, Exchange Act Release No. 36345 

(Oct. 6, 1995) (‘‘1995 Release’’) (providing 

Commission views on the use of electronic media 

to deliver information to investors, with a focus on 

electronic delivery of prospectuses, annual reports 

to security holders and proxy solicitation materials 

under the federal securities laws); Use of Electronic 

Media by Broker-Dealers, Transfer Agents, and 

Investment Advisers for Delivery of Information, 

Exchange Act Release No. 37182 (May 9, 1996) 

(‘‘1996 Release’’) (providing Commission views on 

electronic delivery of required information by 

broker-dealers, transfer agents and investment 

advisers); Use of Electronic Media, Exchange Act 

Release No. 42728 (Apr. 28, 2000) (‘‘2000 Release’’) 

(providing updated interpretive guidance on the use 

of electronic media to deliver documents on matters 

such as telephonic and global consent; issuer 

liability for website content; and legal principles 

that should be considered in conducting online 

offerings). Under the guidance, the Commission’s 

framework for electronic delivery consists of the 

following elements: (1) Notice to the investor that 

information is available electronically; (2) access to 

information comparable to that which would have 

been provided in paper form and that is not so 

burdensome that the intended recipients cannot 

effectively access it; and (3) evidence to show 

delivery (i.e., reason to believe that electronically 

delivered information will result in the satisfaction 

of the delivery requirements under the federal 

securities laws). See 1996 Release at 24646–47. 

defines what it means to ‘‘promptly 

transmit’’ funds and ‘‘promptly deliver’’ 

securities within the meaning of 

paragraphs (a)(2)(i) and (a)(2)(v) of Rule 

15c3–1.209 The concepts of promptly 

transmitting funds and promptly 

delivering securities are incorporated in 

other provisions of the financial 

responsibility rules as well, including 

paragraphs (k)(1)(iii), (k)(2)(i), and 

(k)(2)(ii) of Rule 15c3–3,210 paragraph 

(e)(1)(A) of Rule 17a–5,211 and 

paragraph (a)(3) of Rule 17a–13.212

The Commission acknowledges that 

shortening the standard settlement cycle 

to T+1 will effectively reduce the 

number of days (from 12 business days 

to 11 business days) that a broker-dealer 

will have to obtain possession of 

customer securities before being 

required to close out a customer 

transaction under Rule 15c3–3(m). The 

operations supporting the processing of 

customer orders by broker-dealers and 

the technology supporting those 

operations have developed substantially 

since 1972, when the Commission 

adopted paragraph (m) of Rule 15c3– 

3.213 Based on staff experience, the 

Commission believes that these 

developments have resulted in a lower 

frequency of broker-dealers failing to 

obtain possession of the securities from 

their customers within 10 business days 

after the settlement date. Therefore, the 

Commission believes that these 

developments in technology and brokerdealer operations diminish the potential 

for customers to be adversely affected by 

the change from 12 business days to 11 

business days. Accordingly, the 

Commission believes that the change 

from 12 business days to 11 business 

days would not materially burden 

broker-dealers or their customers,214

and the Commission believes that it is 

unnecessary to amend Rule 15c3–3(m), 

or any of the broker-dealer financial 

responsibility rules, at this time. 

The Commission solicits comment 

regarding the effect that shortening the 

standard settlement cycle from T+2 to 

T+1 could have on the ability of brokerdealers to comply with the 

Commission’s financial responsibility 

rules. 

3. Rule 10b–10 Under the Exchange Act 

Providing customers with 

confirmations pursuant to Rule 10b–10 

serves a significant investor protection 

function.215 Confirmations provide 

customers with a means of verifying the 

terms of their transactions, alerting 

investors to potential conflicts of 

interest with their broker-dealers, acting 

as a safeguard against fraud, and 

providing investors a means to evaluate 

the costs of their transactions and the 

quality of their broker-dealers’ 

execution.216

Although Rule 10b–10 does not 

directly refer to the settlement cycle, it 

requires that a broker-dealer send a 

customer a written confirmation 

disclosing specified information ‘‘at or 

before completion’’ of the transaction, 

which Rule 10b–10 defines to have the 

meaning provided in the definition of 

the term in Rule 15c1–1 under the 

Exchange Act.217 Generally, Rule 15c1– 

1 defines ‘‘completion of the 

transaction’’ to mean the time when: (i) 

A customer purchasing a security pays 

for any part of the purchase price after 

payment is requested or notification is 

given that payment is due; (ii) a security 

is delivered or transferred to a customer 

who purchases and makes payment for 

it before payment is requested or 

notification is given that payment is 

due; (iii) a security is delivered or 

transferred to a broker-dealer from a 

customer who sells the security and 

delivers it to the broker-dealer after 

delivery is requested or notification is 

given that delivery is due; or (iv) a 

broker-dealer makes payment to a 

customer who sells a security and 

delivers it to the broker-dealer before 

delivery is requested or notification is 

given that delivery is due.218

When first adopting Rule 15c6–1 in 

1993 to establish a T+3 settlement cycle, 

the Commission noted that brokerdealers typically send customer 

confirmations on the day after the trade 

date.219 When adopting a T+2 

settlement cycle in 2017, the 

Commission stated that, while brokerdealers may continue to send physical 

customer confirmations on the day after 

the trade date, broker-dealers may also 

send electronic confirmations to 

customers on the trade date. 

Accordingly, the Commission noted its 

belief that implementation of a T+2 

settlement cycle would not create 

problems with regard to a brokerdealer’s ability to comply with the 

requirement under Rule 10b–10 to send 

a confirmation ‘‘at or before 

completion’’ of the transaction, but 

acknowledged that broker-dealers 

would have a shorter timeframe to 

comply with the requirements of Rule 

10b–10 in a T+2 settlement cycle.220

With respect to a T+1 standard 

settlement cycle, the Commission 

similarly believes that T+1 would not 

create a compliance issue for brokerdealers under Rule 10b–10, although 

broker-dealers would have a further 

shortened timeframe to do so in a T+1 

settlement cycle. In addition, as 

explained in Part III.D, proposed Rule 

15c6–2 also would not alter the 

requirements of Rule 10b–10.221

The Commission solicits comment on 

the extent to which the T+1 rule 

proposals may impact compliance with 

Rule 10b–10. In the T+1 Report, the ISC 

recommends clarifying what constitutes 

‘‘delivery’’ for electronic confirmations 

under Rule 10b–10. The Commission 

has previously provided such 

guidance.222 The Commission therefore 

solicits comment on whether this 

guidance needs to be updated in a T+1 

environment. 


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223 15 U.S.C. 77a et seq. Section 5(b)(2) of the 

Securities Act makes it unlawful to deliver (i.e., as 

part of settlement) a security ‘‘unless accompanied 

or preceded’’ by a prospectus that meets the 

requirements of Section 10(a) of the Act (known as 

a ‘‘final prospectus’’). 15 U.S.C. 77e(b)(2). 

224 15 U.S.C. 77e(b)(2); 17 CFR 230.172. Under 

Securities Act Rule 172(b), an obligation under 

Section 5(b)(2) of the Securities Act to have a 

prospectus that satisfies the requirements of Section 

10(a) of the Act precede or accompany the delivery 

of a security in a registered offering is satisfied only 

if the conditions specified in paragraph (c) of Rule 

172 are met. 17 CFR 230.172(b). Pursuant to Rule 

172(d), ‘‘access equals delivery’’ generally is not 

available to the offerings of most registered 

investment companies (e.g., mutual funds), 

business combination transactions, or offerings 

registered on Form S–8. 17 CFR 230.172(d). The 

Commission recently amended Rule 172 to allow 

registered closed-end funds and business 

development companies to rely on the rule. See 

Securities Offering Reform for Closed-End 

Investment Companies, Investment Company Act 

Release No. 33836 (Apr. 8, 2020), 85 FR 33353 (June 

1, 2020). 

225The T+1 Report similarly indicates that SROs 

will likely need to update their rules to facilitate a 

transition to a T+1 standard settlement cycle. T+1 

Report, supra note 18, at 35–36. 

226See infra Part V.C (discussing the anticipated 

benefits of a T+1 standard settlement cycle). 

227 DTCC White Paper, supra note 61, at 8. 

228T+1 Report, supra note 18, at Fig. 1. 

229T+1 Report, supra note 18, at 6–7. 

230Notwithstanding the proposed compliance 

date, market participants could still coordinate to 

establish an earlier T+1 transition date as needed 

to ensure effective planning, testing, and 

implementation. 

231T+1 Report, supra note 18, at Fig. 1. 

4. Prospectus Delivery and ‘‘Access 

Versus Delivery’’ 

Broker-dealers have to comply with 

prospectus delivery obligations under 

the Securities Act.223 As discussed in 

Part III.A.4, Securities Act Rule 172 

implements an ‘‘access equals delivery’’ 

model that permits, with certain 

exceptions, final prospectus delivery 

obligations to be satisfied by the filing 

of a final prospectus with the 

Commission, rather than delivery of the 

prospectus to purchasers.224

The Commission preliminarily 

believes that, if a T+1 standard 

settlement cycle is implemented, such a 

standard settlement cycle would not 

raise any significant legal or operational 

concerns for issuers or broker-dealers to 

comply with the prospectus delivery 

obligations under the Securities Act. 

The Commission requests comment 

on whether commenters believe any 

specific legal or operational concerns 

would arise for issuers or broker-dealers 

to comply with the prospectus delivery 

obligations under the Securities Act if 

the settlement cycle is shortened to T+1. 

The Commission asks that commenters 

identify specific examples of the 

circumstances in which such legal or 

operational difficulties could occur. 

The Commission also requests 

comment on the extent to which the 

T+1 rule proposals may impact 

compliance with the prospectus 

delivery requirements under the 

Securities Act. 

5. Changes to SRO Rules and Operations 

As with the T+2 transition, the 

Commission anticipates that the 

proposed transition to T+1 would again 

require changes to SRO rules and 

operations to achieve consistency with 

a T+1 standard settlement cycle. Certain 

SRO rules reference existing Rule 15c6– 

1 or currently define ‘‘regular way’’ 

settlement as occurring on T+2 and, as 

such, may need to be amended in 

connection with shortening the standard 

settlement cycle to T+1. Certain 

timeframes or deadlines in SRO rules 

also may refer to the settlement date, 

either expressly or indirectly. In such 

cases, the SROs may need to amend 

these rules in connection with 

shortening the settlement cycle to 

T+1.225

Because the Commission is also 

proposing two other rule changes to 

facilitate a T+1 standard settlement 

cycle, SRO rules and operations may be 

affected to a greater extent than 

occurred during the T+2 transition. For 

example, while elements of FINRA Rule 

11860 could be used to facilitate 

compliance with proposed Rule 15c6–2, 

FINRA Rule 11860 currently requires 

that affirmations be completed no later 

than the day after trade date and may 

need to be amended to align with the 

requirements in proposed Rule 15c6–2. 

The Commission solicits comment on 

the extent to which the T+1 rule 

proposals may impact existing SRO 

rules and operations. 

F. Proposed Compliance Date 

Industry planning and testing was 

critical to ensuring an orderly transition 

from a T+3 standard settlement cycle to 

T+2, and the Commission anticipates 

that planning and testing would again 

be critical to ensuring an orderly 

transition to a T+1 standard settlement 

cycle, if adopted. Accordingly, the 

Commission recognizes that the 

compliance date for the above rule 

proposals, if adopted, must allow 

sufficient time for broker-dealers, 

investment advisers, clearing agencies, 

and other market participants to plan 

for, implement, and test changes to their 

systems, operations, policies, and 

procedures in a manner that allows for 

an orderly transition. The Commission 

also recognizes that the compliance date 

must provide sufficient time for brokerdealers and other market participants to 

engage in outreach and education 

regarding the transition to ensure that, 

among other things, their customers, 

including individual retail investors, 

have time to prepare for operational or 

other changes related to a T+1 standard 

settlement cycle. 

The Commission is mindful that 

failure to appropriately implement an 

orderly transition to T+1, if a T+1 

standard settlement cycle is adopted, 

may heighten certain operational risks 

for the U.S. securities markets. 

However, the Commission is also 

mindful that delaying the transition to 

a T+1 standard settlement cycle further 

than is necessary would delay the 

realization of the risk reducing and 

other benefits expected under a T+1 

standard settlement cycle.226 The DTCC 

White Paper contemplated that a 

transition to T+1 is achievable in the 

second half of 2023,227 and the T+1 

Report states that a T+1 transition is 

achievable in the first half of 2024. The 

T+1 Report estimates that planning for 

testing will begin in Q4 2022, that 

industry-wide testing will begin in Q2 

2023, and that industry-wide testing 

will need to occur for one full year 

before implementation of a T+1 

standard settlement cycle.228 The T+1 

Report also states that, once ‘‘regulatory 

certainty and guidance is achieved, the 

industry anticipates a lengthy and 

necessary amount of time will be 

required for T+1 implementation.’’ 229

With these dates and considerations 

in mind, the Commission believes that 

market participants should prepare 

expeditiously for a T+1 transition and 

proposes a compliance date of March 

31, 2024.230 If the proposed rules and 

rule amendments presented in this 

release are adopted as proposed, the 

Commission believes that the systems 

and operational changes necessary at 

the industry level can be planned, 

tested, and implemented in advance of 

March 31, 2024. Although the T+1 

Report estimates that planning for 

testing will not begin until Q4 2022, and 

that industry-wide testing will not begin 

until Q2 2023,231 the Commission 

believes that market participants can 

implement a T+1 standard settlement 

cycle by the earlier end of the T+1 

Report’s overall time table. Specifically, 

planning for testing could begin sooner 

than Q4 2022, so that industry-wide 

testing can begin in early 2023 and 

conclude in early 2024, in advance of 

the proposed compliance date. 

70. The Commission solicits comment 

on whether the proposed March 31, 

2024 compliance date is appropriate for 

each of the four proposed rules (Rule 

15c6–1, Rule 15c6–2, Rule 17Ad–27, 


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232See supra note 12 and accompanying text. 

233 In Part IV.B, the Commission solicits comment 

on the merits of this model versus the others 

described, as well as any other potential settlement 

models. 

234See T+2 Adopting Release, supra note 10, at 

15598. 

235 If price changes are uncorrelated across time 

periods then the variance of price change over T 

periods is T times the variance over a single period. 

Therefore, the standard deviation of price changes 

over T periods is T1/2 times the standard deviation 

over a single period. 

236See id. 

237See id. 

238See supra notes 76–79 and accompanying text. 

239T+1 Report, supra note 18, at 10; see also 

supra notes 76–77 and accompanying text 

(discussing the same). 

and the amendment to Rule 204–2(a)). 

How many months would market 

participants need to plan, test, and 

implement a transition to T+1? What 

data points would market participants 

use to assess the timing for planning, 

testing, and implementation? Are any 

specific operational or technological 

issues raised by the proposed 

compliance date? To what extent does 

the proposed compliance date align or 

not align with typical practices related 

to the planning and testing of systems 

or other technology changes among 

affected parties, such as market 

participants, broker-dealers, investment 

advisers, or clearing agencies? For 

example, to achieve a compliance date 

of March 31, 2024, to what extent, if 

any, would these parties (and market 

participants more generally) have to 

consider an implementation date that is 

earlier than March 31, 2024? Why? 

Please explain. 

71. What is the extent of planning and 

testing necessary to achieve an orderly 

transition to a T+1 standard settlement 

cycle, if adopted? In responding to this 

request for comment, commenters 

should provide specific data and any 

other relevant information necessary to 

explain the extent of industry-wide 

planning and testing that would be 

required to ensure an orderly transition 

to the proposed T+1 settlement cycle by 

March 31, 2024. 

72. The Commission has proposed a 

single compliance date applicable to 

each of the four proposed rules. Would 

staggering the compliance dates for 

these rules help facilitate an orderly 

transition to a T+1 settlement cycle, if 

adopted? For example, should the 

compliance date for Rule 15c6–2, if 

adopted, fall before the compliance date 

for Rule 15c6–1, to ensure an orderly 

transition to a T+1 settlement cycle, if 

adopted? If staggering would be 

appropriate, what would be an 

appropriate schedule of compliance 

dates? Would staggering the compliance 

dates introduce impediments to an 

orderly T+1 settlement cycle transition? 

If so, please describe. 

IV. Pathways to T+0 

The Commission uses T+0 in this 

release to refer to settlement that is 

complete by the end of trade date.232

This has sometimes been referred to as 

same-day settlement. In the 

Commission’s preliminary view, sameday settlement could occur pursuant to 

at least three different models: (i) Netted 

settlement at the end of the day on T+0; 

(ii) real-time settlement, where 

transactions are settled in real time or 

near real time and presumably on a 

gross basis (i.e., without any netting 

applied to reduce the overall number of 

open positions); and (iii) ‘‘rolling’’ 

settlement, where trades are netted and 

settled intraday on a recurring basis. In 

this release, the Commission uses T+0 

to refer specifically to netted settlement 

at the end of the day on T+0. The 

Commission believes that this model of 

same-day settlement is currently the 

most appropriate to consider applying 

to the standard settlement cycle after 

implementation of T+1, if adopted, 

because it retains a core element of the 

existing settlement infrastructure— 

namely, the application of multilateral 

netting at the end of trade date to reduce 

the overall number of open positions 

before completing settlement.233

The Commission preliminarily 

believes that implementing a T+0 

standard settlement cycle would have 

similar benefits of market, credit, and 

liquidity risk reduction that were 

realized in the shortening of the 

settlement cycle from T+3 to T+2 and 

are expected in moving from a T+2 to 

a T+1 standard settlement cycle. In 

particular, shortening from a T+2 

standard settlement cycle to a T+0 

standard might result in a larger 

reduction in certain settlement risks 

than would result from shortening to a 

T+1 standard because the risks 

associated with counterparty default 

tend to increase with time.234 Similarly, 

because price volatility is a concave 

function of time,235 the shorter 

settlement cycle in a T+0 environment 

will reduce expected price volatility to 

a greater extent than in a T+1 

environment.236 In addition, assuming 

constant trading volume, the volume of 

unsettled trades for a T+0 settlement 

cycle could be roughly half that from a 

T+1 settlement cycle, and, as a result, 

for any given adverse movement in 

prices, the financial losses resulting 

from counterparty default could be half 

that expected in a T+1 settlement 

cycle.237

The Commission believes that now is 

the time to begin identifying potential 

paths to achieving T+0. Thus, the 

Commission is actively assessing the 

benefits and costs associated with 

accelerating the standard settlement 

cycle to T+0. As the securities industry 

plans how to implement a T+1 standard 

settlement cycle, this process should 

include consideration of the potential 

paths to achieving T+0 to help ensure 

that investments in new technology and 

operations undertaken to achieve T+1 

can maximize the value of such 

investments over the long term. In this 

way, the transition to a T+1 settlement 

cycle can be a useful step in identifying 

potential paths to T+0. 

The Commission is also mindful of 

some perceived challenges to 

implementing a T+0 standard settlement 

cycle in the immediate future identified 

by market participants. As discussed 

above,238 the T+1 Report states that T+0 

is ‘‘not achievable in the short term 

given the current state of the settlement 

ecosystem’’ and would require an 

‘‘overall modernization’’ of modern-day 

clearance and settlement infrastructure, 

changes to business models, revisions to 

industry-wide regulatory frameworks, 

and the potential implementation of 

real-time currency movements to 

facilitate such a change.239 The T+1 

Report identified ‘‘key areas’’ that 

industry groups determined would be 

impacted by a move to T+0 settlement, 

including re-engineering of securities 

processing; securities netting; funding 

requirements for securities transactions; 

securities lending practices; prime 

brokerage practices; global settlement; 

and primary offerings, derivatives 

markets and corporate actions. 

To advance the discussion of 

developing and achieving a T+0 

standard settlement cycle, the 

Commission solicits comment on 

potential approaches to overcoming the 

operational and other barriers identified 

by market participants for shortening 

the standard settlement cycle beyond 

T+1. Specifically, the Commission in 

Part IV.A discusses three potential 

approaches that could be used to 

implement a T+0 settlement cycle, and 

solicits comment on all aspects of the 

approaches described. The Commission 

also discusses in Part IV.B the 

operational and other challenges that 

market participants have identified for 

implementing T+0, and solicits 

comment on the building blocks 

necessary to address or resolve those 

challenges to enable a T+0 settlement 

cycle. 


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10466 Federal Register / Vol. 87, No. 37 / Thursday, February 24, 2022 / Proposed Rules 

240See DTCC, Project ION Case Study (May 

2020), https://www.dtcc.com/∼/media/Files/ 

Downloads/settlement-asset-services/userdocumentation/Project-ION-Paper-2020.pdf. 

241See Press Release, DTCC, DTCC’s Project ION 

Platform Moves to Development Phase Following 

Successful Pilot with Industry (Sept. 15, 2021), 

https://www.dtcc.com/news/2021/september/15/ 

dtccs-project-ion-platform-moves-to-developmentphase-following-successful-pilot-with-industry. 242See id. To the extent that elements of the ION 

MVP program constitute rules, policies, or 

procedures of NSCC or DTC, it may be subject to 

the requirements for submitting proposed rule 

changes under Section 19 of the Exchange Act and 

Rule 19b–4. See 15 U.S.C. 78s(b); 17 CFR 240.19b– 

4. To the extent that this proposal would involve 

changes to rules, procedures, and operations that 

could materially affect the nature or level of risk 

presented by NSCC or DTC, they may also be 

required to submit an Advance Notice under the 

Dodd-Frank Act. See 12 U.S.C. 5465(e)(1)(A); 17 

CFR 240.19b–4(n). 

243See Exchange Act Release No. 94092 (Jan. 27, 

2022), 87 FR 5881 (Feb. 2, 2022) (order approving 

a proposed rule change to adopt rules governing the 

listing and trading of equity securities on BOX 

Exchange LLC through a facility of BOX Exchange 

LLC to be known as BSTX LLC). 244See T+1 Report, supra note 18, at 10; see also 

supra notes 77–78 and accompanying text 

(discussing the same); infra note 385 and 

accompanying text (noting that some benefits may 

accrue to those market participants with high 

market power). 

A. Possible Approaches to Achieving 

T+0 

To facilitate discussion of T+0 

settlement, the Commission has 

identified three possible approaches or 

frameworks for considering how to 

implement T+0 settlement. These are 

presented not as an exhaustive, 

complete, or discrete list of pathways 

but rather as example cases that help 

illustrate the range of potential 

approaches, or combination of 

approaches, that might be useful in 

facilitating investments that improve the 

efficiency of the National C&S System, 

including the ability to implement a 

T+0 standard settlement cycle. The 

Commission provides these examples to 

help facilitate comment on the 

implications of a T+0 standard 

settlement cycle and the mechanics of 

implementation, as well as their 

potential impact on the challenges 

identified in Part IV.B. Comments 

received will help inform any future 

proposals. 

1. Wide-Scale Implementation 

One possible path to shortening the 

settlement cycle from T+1 to T+0 

involves a wide effort, led by the 

Commission or an industry working 

group, to develop and publish 

documents like the ISG White Paper, the 

T+2 Playbook, and now the T+1 Report, 

in which industry experts identify the 

full set of potential impediments to T+0, 

propose solutions, and develop a 

timeline for education, testing, and 

implementation. 

While this approach would mirror 

past efforts to shorten the settlement 

cycle, it necessarily requires industrywide solutions to the impediments 

identified with respect to T+0, such as 

those that may be related to the 

considerations in Part IV.B. For this 

reason, the Commission believes that it 

may be helpful to consider two 

alternative paths to T+0: (i) An 

approach where implementation begins 

first with technology and operational 

changes by key infrastructure providers; 

and (ii) an approach where exchanges 

and clearing agencies offer pilots or 

similar small-scale programs to establish 

T+0 as an optional settlement cycle in 

certain circumstances. 

2. Staggered Implementation Beginning 

With Key Infrastructure 

An alternative approach to shortening 

the settlement cycle from T+1 to T+0 

could begin by focusing efforts on 

improving key settlement infrastructure 

to support wide-scale implementation of 

T+0 settlement cycle. Such an approach 

could involve the development of 

industry-led or academic research 

designed to identify the key 

improvements and to promote 

engagement with respect to 

development and implementation. 

Under this approach, a key 

assumption is that achieving a T+0 

standard settlement cycle, or the 

benefits anticipated from it, may not be 

possible until existing market 

infrastructure has sufficient capacity to 

support the full range of market 

participants who would settle their 

transactions on T+0, and that the 

challenges to achieving T+0 derive, in 

part, from insufficient capacity or 

capability to serve those market 

participants. Infrastructure providers 

have used this approach in the past to 

develop, test, and implement new 

technologies and services before widescale release. For example, as discussed 

in Part II.C, following implementation of 

a T+2 standard settlement cycle, DTCC 

began to pursue two sets of initiatives, 

accelerated settlement and settlement 

optimization, designed to improve its 

own infrastructure to support more 

efficient settlement processes. A similar 

effort following implementation of T+1 

could identify improvements to existing 

infrastructure that could address the 

challenges identified in Part IV.B. For 

example, infrastructure providers like 

DTCC could explore mechanisms that 

expand the availability of money 

settlement, as discussed further in Part 

IV.B.3, or reduce the timing challenges 

associated with T+0 settlement, as 

discussed in Part IV.B.8. 

3. Tiered Implementation Beginning 

With Pilot Programs 

Exchanges and clearing agencies have 

often deployed new technologies in 

targeted environments to test new 

functionality and service offerings on a 

small scale. This approach could allow 

market participants to test T+0 

settlement in a targeted environment, 

such as using a specific exchange or 

exchanges, specific securities, and/or 

specific settlement services at a 

registered clearing agency. SROs could 

consider pilot proposals that could help 

advance development of the operational 

and technological resources necessary to 

enable T+0 settlement. 

For example, DTCC began exploring 

the use of distributed ledger in 2015, 

completed its Project ION case study in 

2020,240 and recently announced plans 

to deploy its ION platform through its 

‘‘minimal viable product’’ pilot 

program.241 According to DTCC, the 

ION MVP program is a mechanism for 

NSCC and DTC participants to test the 

use of distributed ledger technology 

alongside ‘‘classic’’ settlement 

infrastructure at NSCC and DTC.242

Similarly, BOX Exchange LLC recently 

implemented its Boston Security Token 

Exchange (‘‘BSTX’’) platform to enable 

access to accelerated settlement for 

certain securities.243 In India, where the 

Securities and Exchange Board of India 

recently announced plans to implement 

a T+1 settlement cycle, the securities 

regulator plans to allow local stock 

exchanges to offer T+1 settlement on 

certain securities, while retaining a T+2 

settlement cycle for others. Each case 

presents examples where new 

technologies are offered on a select 

basis, such as on certain exchanges or 

for certain securities, in ways that could 

allow market participants to begin to 

adapt to T+0 settlement on an 

incremental basis in a controlled 

environment. 

Such an approach potentially allows 

market participants to achieve T+0 

without having to first address all of the 

challenges described in Part IV.B for all 

market participants, instead enabling 

experimentation and innovation to find 

solutions for certain segments over time. 

This could help minimize one challenge 

noted in the T+1 Report: That T+0 

would likely require the adoption of 

new technologies, implementation costs 

that would disproportionately fall on 

small and medium-sized firms that rely 

on manual processing or legacy systems 

and may lack the resources to 

modernize their infrastructure 

rapidly.244


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245See infra Part V.B.1 (discussing the capital 

efficiencies and risk reducing effects that result 

from the use of multilateral netting). 

246Part IV.B.3 discusses existing limitations in 

money settlement infrastructure that may contribute 

to this challenge. 

B. Issues To Consider for Implementing 

T+0 

Below the Commission describes 

several challenges identified as 

impediments to implementing a T+0 

standard settlement cycle, particularly 

in the short term. The Commission 

requests comment on these challenges, 

as well as any comments identifying 

other challenges or necessary building 

blocks associated with implementing 

T+0. More generally, with respect to 

each of these topics, the Commission 

solicits comment on ways to improve 

the efficiency of and reduce the risks 

that can result from the post-trade 

processes implicated by each of these 

challenges. The Commission is 

particularly interested in commenters 

that identify potential methods or 

building blocks that can enable T+0. In 

considering the below topics, the 

Commission also requests that 

commenters assess whether the three 

approaches identified in Part IV.A might 

affect the analysis of the below or 

otherwise reveal potential methods for 

addressing and implementing them. 

1. Maintaining Multilateral Netting at 

the End of Trade Date 

As discussed in Part II.B.1, 

multilateral netting by the CCP is an 

essential feature of the National C&S 

System. By substantially reducing the 

volume and value of transactions in 

equity securities that need to be settled 

each day, CCP netting unlocks 

substantial capital efficiencies for 

market participants while, at the same 

time, reducing credit, market, and 

liquidity risk in the National C&S 

System. While the Commission 

continues to consider how new 

technologies and business practices in 

the industry might further reduce risk 

and promote capital efficiency, the 

Commission preliminarily believes that 

the capital efficiencies and risk 

reduction benefits that result from the 

use of multilateral netting make it 

unlikely that market participants could 

cost-effectively implement a T+0 

standard settlement cycle without the 

continued use of multilateral netting in 

some form.245

In particular, at this time the 

Commission believes that a transition 

from T+1 settlement to real-time 

settlement could not be achieved 

without substantial and significant 

changes to fundamental elements of 

market structure and infrastructure 

because real-time settlement, to the 

extent it requires gross settlement would 

prevent the use of, or significantly 

reduce the utility of, multilateral netting 

before settlement. If market participants 

develop technologies and business 

practices that can support the use of a 

real-time settlement system in the U.S. 

at some point in the future, the 

Commission is interested in 

understanding how such technologies 

might interact with existing 

infrastructure that provides multilateral 

netting. Indeed, retaining multilateral 

netting in a T+0 environment poses 

challenges that include accommodating 

the submission of trades for clearing 

during and after the close of regular 

trading hours while still producing 

netting results with sufficient time to 

enable market participants to position 

their cash and securities to achieve final 

settlement before money settlement 

systems close for the day.246 The 

Commission observes that existing 

processes and computational tools used 

to complete the processing and 

settlement of trades currently rely on 

significantly more time than the few 

hours between the close of regular 

trading hours and the close of money 

settlement systems on a given day. 

The Commission is interested in 

receiving public comments on both the 

utility of centralized multilateral netting 

as a feature of the National C&S System 

and any potential impediments or 

challenges associated with retaining 

such netting functionality while 

shortening the settlement cycle to T+0. 

The Commission is also interested in 

receiving public comments on potential 

benefits or costs associated with realtime settlement. In particular the 

Commission requests comment on the 

following: 

73. Is it possible to shorten the 

settlement cycle in the U.S. markets to 

T+0 and retain multilateral netting? If 

so, what is the earliest time on T+0 that 

market participants could be prepared 

to settle their trades without eliminating 

multilateral netting, and what changes, 

if any, to existing netting processes 

would be necessary to move to a T+0 

settlement cycle? 

74. Could a real-time settlement 

model be successfully deployed in the 

National C&S System in a way that 

compliments the use of multilateral 

netting? If yes, please explain. For 

example, most institutional trades that 

use bank custodians generally are not 

submitted to CNS for netting. Would it 

be possible to settle those trades in a 

real-time settlement model while other 

trading activity would continue to rely 

on multilateral netting? Alternatively, 

would it be beneficial to find ways to 

move more institutional trades into 

multilateral netting processes, such as 

by expanding access to multilateral 

netting systems to custodians? Why or 

why not? What are the impediments to 

expanding access to custodians? 

75. If real-time settlement is not 

possible without eliminating or 

substantially curtailing multilateral 

netting activity, please explain. 

76. If real-time settlement is not 

compatible with multilateral netting, 

would the potential benefits of real-time 

gross settlement still justify the 

elimination of multilateral netting in the 

National C&S System? Please explain 

why or why not. 

77. What impact would the 

elimination of multilateral netting have 

on capital demands (e.g., margin 

requirements) imposed on market 

participants in connection with their 

settlement obligations? To the extent 

possible, please include any 

quantitative estimates or data that may 

be relevant to the request for comment. 

78. How would the elimination of 

multilateral netting impact overall 

levels of market, liquidity and credit 

risk in the clearance and settlement 

system and how might such risks be 

distributed among market participants? 

79. Are there disadvantages to 

multilateral netting and, if so, what are 

they? Does multilateral netting mandate 

the use of agreed timeframes to 

determine which trades will be 

included in netting (for example, trades 

settling on or executed on a given day 

or within a given hour)? Why or why 

not? Are there netting activities that 

currently only happen once a day that 

might need to occur more often for 

trades to settle at the end of trade date? 

If so, what are they and are there 

benefits, costs or risks to performing 

these activities more than once a day? 

80. Does multilateral netting foster or 

require the use of batch processing? 

Does multilateral netting necessitate 

sequential processing activities that 

impede the adoption of same-day 

settlement? Why or why not? For 

example, do introducing broker-dealers 

that maintain omnibus accounts at 

clearing broker-dealers need to net their 

activity prior to submitting net trades to 

their clearing broker-dealers who, in 

turn, have a dependency before being 

able to calculate their own net figures? 

Are there computational or other 

technology upgrades that could be 

employed to accelerate these processes 

so that they could continue to function 

effectively under the shortened 

timeframes available in a T+0 

environment? Are there other settlement 


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10468 Federal Register / Vol. 87, No. 37 / Thursday, February 24, 2022 / Proposed Rules 

247See DTC, Settlement Service Guide, at 68 

(June 24, 2021), https://www.dtcc.com/-/media/ 

Files/Downloads/legal/service-guides/ 

Settlement.pdf. 248See id. at 18–19. 

249ETFs are investment companies registered 

under the Investment Company Act. See 15 U.S.C. 

80a–3(a)(1). Historically, ETFs have been organized 

as open-end funds or UITs. 

250See 17 CFR 270.2a–4 (defining ‘‘current net 

asset value’’). 

251Open-end funds are required by law to redeem 

their securities on demand from shareholders at a 

price approximating their proportionate share of the 

models, such as those deploying 

intraday or rolling settlement, that could 

improve the settlement process in such 

a way that facilitates an effective 

multilateral netting process at the end of 

the day in a T+0 environment? 

2. Achieving Same-Day Settlement 

Processing 

Moving settlement to the end of trade 

date would significantly compress the 

array of operational activities and 

processes required to achieve 

settlement, raising questions about 

whether the current arrangement of 

settlement processes can support T+0 

settlement. 

For example, in the current T+2 

settlement environment, DTC processes 

certain transactions for settlement 

during the day on settlement date and 

other transactions the night before 

settlement date (‘‘S–1’’) during the socalled ‘‘night cycle,’’ which begins at 

8:30 p.m. on S–1. Processing 

transactions during the night cycle 

allows for earlier settlement of certain 

transactions that are included in the 

night cycle, thereby reducing 

counterparty risk and, with respect to 

transactions that are cleared through 

NSCC, enables such transactions to be 

removed from members’ marginable 

portfolios, which in turn reduces such 

members’ NSCC margin requirements. 

DTC uses a process called the ‘‘Night 

Batch Process’’ to control the order of 

processing of transactions in the night 

cycle.247 During the Night Batch 

Process, DTC evaluates each 

participant’s available positions, 

transaction priority and risk 

management controls, and identifies the 

transaction processing order that 

optimizes the number of transactions 

processed for settlement. The Night 

Batch Process allows DTC to run 

multiple processing scenarios until it 

identifies an optimal processing 

scenario. At approximately 8:30 p.m. on 

S–1, DTC subjects all transactions 

eligible for processing to the Night 

Batch Process, which is run in an ‘‘offline’’ batch that is not visible to 

participants, allowing DTC to run 

multiple processing scenarios until the 

optimal processing scenario is 

identified. The results of the Night 

Batch Process are incorporated back into 

DTC’s core processing environment on a 

transaction-by-transaction basis. 

Because trade date and settlement 

date would be the same day in a T+0 

environment, shortening the standard 

settlement cycle to T+0 would require 

DTC and its participants to initiate and 

complete their settlement processes 

much sooner relative to the time a trade 

is executed and without the benefit of 

any overnight processes. Compressing 

timeframes to achieve T+0 settlement 

necessarily removes the ability to 

perform any settlement activities on S– 

1. This has implications for how DTC 

conducts its existing ‘‘night cycle’’ 

process but, more broadly, for all the 

market participants who collect trading 

information that feeds into the night 

cycle process and any systems that they 

run overnight to prepare for settlement. 

Moving to a T+0 settlement cycle would 

also impact the processing timeframes 

for corporate actions. 

The Commission requests public 

comment regarding the prospective 

impact that shortening the settlement 

cycle to T+0 would have on settlement 

processes such as those described 

above. In particular, the Commission 

requests comment on the following: 

81. Would shortening the standard 

settlement cycle to T+0 allow sufficient 

time for settlement processes that are 

currently conducted by DTC and its 

participants to be completed on a 

timeframe that is compatible with 

timely settlement? If not, why not? 

82. When would be the optimal time 

to complete existing processes that 

occur on S–1 in a T+0 environment? 

More generally, how would existing 

settlement processes that occur on S–1 

need to change to accommodate a T+0 

standard settlement cycle? 

83. What would be the impact on 

market participants (clearing agencies, 

broker-dealers, buy side participants, 

retail investors, etc.) of any changes in 

processes necessary to accommodate 

T+0? 

84. What risks, if any, arise by the 

compression of the settlement cycle to 

accommodate T+0, particularly as it 

relates to market, credit, liquidity, and 

systemic risk? What are the associated 

costs of these risks? How might these 

risks affect the market, trading 

behaviors, investors (both retail and 

institutional), and innovation? Is 

mitigation of these risks feasible, and if 

so, how? 

3. Enhancing Money Settlement 

To achieve final settlement on 

settlement date, DTCC and its clearing 

agency participants rely on access to 

two systems operated by the Federal 

Reserve Board, the National Settlement 

Service and Fedwire.248 These systems 

settle the cash portions of securities 

transactions. Final settlement at NSS 

and Fedwire currently must occur by 

6:30 p.m., leaving little time in a T+0 

environment for market participants to 

settle their positions in an end-of-day 

process after most major U.S. stock 

exchanges typically close at 4:00 p.m. 

Although Fedwire (but not NSS) 

reopens at 9:00 p.m., payments posted 

are processed overnight and, like NSCC/ 

DTC securities movements processed 

during the night cycle, do not settle 

until the following day. NSS is available 

throughout the trading day, although 

currently DTCC only makes use of it at 

defined points during the day. 

85. To achieve T+0, would NSS and 

FedWire services need to have their 

availability expanded? If so, how? What 

timeframes (both minimum and desired 

standards) would be necessary to 

accommodate T+0? 

86. What other changes to NSS or 

FedWire, if any, would be necessary to 

accommodate a T+0 settlement 

environment? If the available windows 

for NSS or FedWire were to change, 

what changes would market participants 

need to make to their own systems and 

processes to accommodate such 

changes? 

87. Are there ways to manage the 

money settlement process in a T+0 

environment that do not require changes 

to NSS or FedWire? Please explain. 

4. Mutual Fund and ETF Processing 

Purchases and redemptions of shares 

of open-end mutual funds generally 

settle today on a T+1 basis, except for 

certain retail funds and ETFs sold 

through intermediaries,249 which 

typically settle on T+2. For open-end 

funds, several mutual fund families 

offer investors the ability to open an 

account directly with the fund’s transfer 

agent and trade through that account. In 

other cases, orders are placed with 

intermediaries, such as broker-dealers, 

banks and retirement plan 

recordkeepers. Much of this 

intermediary activity is processed 

through DTCC’s Fund/SERV system, in 

which intermediaries submit orders 

through Fund/SERV that are then routed 

to mutual fund transfer agents to be 

executed at the current net asset value 

(‘‘NAV’’) 250 next calculated by the 

fund’s administrator after receipt of the 

order, pursuant to Rule 22c–1 of the 

Investment Company Act.251 These 


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fund’s NAV at the time of redemption. See 15 

U.S.C. 80a–22(d). 

252As noted in Part IV.B.3, most major U.S. stock 

exchanges typically close at 4:00 p.m. ET during 

standard (i.e., non-holiday) trading hours. 

253For example, if an order were placed as shares, 

the intermediary would multiply the share quantity 

and the NAV to determine the amount of money to 

be paid or received. If an order were placed as a 

dollar amount, the intermediary would divide this 

amount by the NAV to calculate the share quantity 

traded. (These calculations may be further adjusted 

for commissions or other fees.) Exchange 

transactions would require two calculations: One 

for the redemption side of any exchange, and then 

a second calculation for the subscription side of the 

exchange. 

254See supra note 248 and accompanying text. 

255Per a 2017 ICI survey based on 3Q 2016 data, 

only 70% of trade flow, including estimated trade 

flow, is known by funds or their transfer agents 

around 5:00 p.m. ET and that number remains 

rather constant until approximately 7:00 a.m. ET on 

T+1. See ICI, Evaluating Swing Pricing: Operational 

Considerations, at 4 (June 2017), https://

www.ici.org/system/files/attachments/pdf/ppr_17_

swing_pricing_summary.pdf. 

256Purchases and sales of ETFs in the secondary 

market may offset one another and do not always 

result in a primary market transaction between the 

AP and the ETF to create or redeem units. 

orders may be submitted on an omnibus 

basis and in one of three ways: As a 

request to purchase or redeem a given 

number of shares or units, as a request 

to purchase or redeem a given U.S. 

dollar value, or as a request to exchange 

a given number of shares/units or U.S. 

dollar value for another fund. Because 

the NAV becomes the ‘price’ for each 

order, the net money to be paid or 

received at settlement cannot be 

calculated until after the NAV has been 

calculated and published. Once the 

NAV is available, the transfer agent is 

able to issue confirmations to the 

intermediaries acknowledging receipt 

and execution of the orders submitted. 

For orders submitted as share quantities, 

the net confirmation includes not only 

the quantity executed, but the net 

amount of money to be exchanged at 

settlement. For orders submitted as U.S. 

dollar amounts, the transfer agent can 

calculate the quantity purchased or 

redeemed and include it in the confirm. 

For exchanges of shares in one fund for 

shares in another, the NAV of both 

funds is required to determine both the 

quantity and the net settlement amount 

for each fund. 

In general, mutual fund families will 

utilize prices as of 4:00 p.m. ET to value 

the underlying holdings in each fund for 

the current day.252 This is a critical 

input to the calculation of the NAV and, 

as such, 4:00 p.m. ET is a dependency 

in the NAV calculation process. Prior to 

4:00 p.m. ET, fund administrators are 

able to reconcile holdings to custodians, 

calculate and apply any income and 

expense accruals, update the shares 

outstanding based on the prior day’s 

purchase and redemption activity and 

in general prepare for the receipt of 

current-day prices. Once those prices 

are available, fund administrators are 

able to apply prices to holdings, perform 

a variety of validation checks on the 

prices and fund and ultimately calculate 

or ‘‘strike’’ the NAV, then submitting or 

publishing the NAV to pricing vendors, 

newspapers and intermediaries. This 

tends to occur between 6:00 p.m. ET 

and 8:00 p.m. ET. 

Once the day’s NAV of a fund is 

available and each intermediary 

calculates the settlement quantity or 

monetary amount for each order,253 the 

intermediary aggregates and nets the 

amount of money to be paid to or 

received from each fund’s agent bank. 

These values are aggregated and netted 

to determine a single payment or receipt 

per bank and instructions are sent to the 

intermediary’s bank to arrange for 

payments. 

In the event an intermediary is an 

introducing broker, these introducing 

broker calculations are then forwarded 

to the clearing broker, which, in turn, 

aggregates values received from other 

introducing brokers as well as any of its 

own order activity. Ultimately the 

clearing broker determines a single net 

payment or receipt for each agent bank 

representing all of the funds traded. The 

clearing broker must receive 

calculations for all its introducing 

brokers before it can finalize its own 

calculations. 

Given the current timing of NAV 

calculation and publication, we 

understand that many market 

participants are not able to calculate net 

settlement amount or quantity traded 

until after 8:00 p.m. ET. This is 90 

minutes later—to the extent this activity 

occurs on 8:00 p.m. ET—than the time 

the Federal Reserve’s NSS system, 

which moves the cash necessary to 

effect settlement of securities 

transactions, closes at 6:30 p.m.254 Even 

when a NAV is available at 6:00 p.m. 

ET, there is only a 30-minute window 

for intermediaries to obtain the NAV, 

calculate settlement quantity or net 

amount, determine the net cash to be 

paid or received for each fund, further 

determine the net payment or receipt for 

each agent bank across all funds traded 

and to submit these values to NSS prior 

to its close at 6:30 p.m. ET. In addition, 

if the intermediary services other 

intermediaries at another omnibus 

‘‘tier,’’ such as a clearing broker 

servicing one or more introducing 

brokers, the intermediary must wait on 

calculations from others before 

finalizing its own numbers and 

submitting instructions. This sequential 

processing introduces a greater number 

of activities that must occur in the 

approximately 30-minute window that 

would typically be available for sameday settlement. 

As noted earlier, to receive a given 

day’s NAV, intermediaries must receive 

orders prior to the time at which the 

fund’s NAV is calculated, but 

intermediaries may not submit these 

orders to Fund/SERV or the transfer 

agent until after the NAV calculation 

time, in some cases as late as around 

7:30 a.m. ET on T+1.255 The 

Commission understands this is often 

the case with retirement plan 

recordkeepers who perform compliance 

and other checks on orders before they 

are finalized for submission to Fund/ 

SERV. Such timing would require 

modification to support end of day 

settlement on T+0. 

Unlike mutual funds, ETFs do not sell 

or redeem individual shares. Instead, 

APs that have contractual arrangements 

with the ETF purchase and redeem ETF 

shares directly from the ETF in blocks 

called ‘‘creation units.’’ An AP that 

purchases a creation unit of ETF shares 

directly from the ETF deposits with the 

ETF a ‘‘basket’’ of securities and other 

assets identified by the ETF that day, 

and then receives the creation unit of 

ETF shares in return for those assets. 

After purchasing a creation unit, the AP 

may hold the individual ETF shares, or 

sell some or all of them in secondary 

market transactions. The redemption 

process is the reverse of the purchase 

process: The AP redeems a creation unit 

of ETF shares for a basket of securities 

and other assets. Secondary market 

trading of ETF shares occurs at marketdetermined prices (i.e., at prices other 

than those described in the prospectus 

or based on NAV), and the settlement 

values will be known at the time of 

execution, similar to an exchange-traded 

equity security.256 Secondary market 

ETF share transactions settle today on a 

T+2 basis. Currently, most securities in 

a ‘‘creation basket’’ settle in a similar 

timeframe (T+2) as the settlement time 

for a ‘‘creation unit,’’ which is also the 

same as the settlement time for the ETF 

shares sold to APs, as well as ETF 

shares traded in the secondary market. 

NAVs are calculated for ETF shares in 

a manner similar to the process for 

open-end mutual funds, with 

comparable times for capturing prices of 

underlying holdings and for publishing 

the NAVs. Secondary market purchases 

and sales of ETF shares occur 

throughout the business day and often 

occur at prices that differ from the ETF’s 


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257The combination of the creation and 

redemption process with secondary market trading 

in ETF shares and underlying securities provides 

arbitrage opportunities that are designed to help 

keep the market price of ETF shares at or close to 

the NAV per share of the ETF. See Exchange-Traded 

Funds, Investment Company Act Release No. 33646 

(Sept. 25, 2019), 84 FR 57162, 57165 n.31 (Oct. 24, 

2019). 

258We understand that some institutional 

investors may opt to place orders to trade ETFs at 

the end-of-day NAV. These are generally placed 

with a market maker who may or may not be an 

AP. The market maker will guarantee the end-ofday NAV price plus (or less) a fee (depending on 

the direction of the trade) to cover transaction costs 

and profit. The market makers can either trade with 

the institutional investor as a proprietary or 

principal trade or they can submit a creation/ 

redemption as agent on behalf of the institutional 

investor and deliver/receive cash or the basket in 

exchange for the ETF shares. Under these 

circumstances, secondary market investors in ETF 

shares would incur the same time compression 

described above for open-end mutual funds to settle 

on a T+0 basis. 

NAV.257 Those trading ETF shares in 

the secondary market during the day 

will know their settlement amount 

almost immediately, because the 

transaction price is the market price of 

the shares. Therefore, secondary market 

ETF share transactions generally do not 

present the same challenges presented 

by open-end mutual funds when 

considering same-day settlement.258

The Commission requests comment 

on the challenges open-end mutual 

funds and ETFs might experience if U.S. 

markets were to adopt T+0 settlement. 

88. Are there additional factors that 

may negatively affect same-day 

settlement of open-end mutual funds 

and ETFs that we have not described, 

and if so, what are they? Please provide 

as much detail as possible. 

89. Are fund administrators able to 

calculate and release NAVs any earlier 

while still relying on 4:00 p.m. ET 

prices? What can they do to optimize 

their processes, including the 

publication of the NAV? 

90. Is our description of the netting 

across multiple omnibus ‘‘tiers’’—and 

the subsequent sequential processing 

that results—an accurate portrayal? If 

so, how many tiers might exist that 

would necessitate sequential processes 

and how long might each tier be 

expected to need to perform its 

calculations to pass on to the next tier? 

What factors influence this processing? 

Are there potential solutions to this 

sequential processing challenge and, if 

so, what are they? Are there ways in 

which intermediaries might process 

information concurrently? If this 

description of netting across multiple 

omnibus tiers does not capture current 

processes, please provide an 

explanation of the way(s) it does occur 

today. 

91. Could open-end mutual funds and 

ETFs settle on a T+1 basis even if other 

security types, such as equities and 

corporate bonds, move to T+0 

settlement? If so, what risks would be 

introduced to open-end mutual funds 

and ETFs from holding positions in 

securities that settle on a T+0 basis 

when trades of the fund’s shares occur 

on a T+1 basis? Should these funds 

receive large amounts of purchases from 

investors, would they wait a day for 

those purchase transactions to settle 

before investing cash in securities? 

Would they rely on borrowing facilities 

and, if so, does that introduce new 

issues or risks? For large redemption 

requests by investors, would these funds 

have additional time to liquidate 

underlying holdings or would they 

increase their cash position in the 

interim? 

92. Are there additional 

considerations for APs if securities in a 

creation basket settle on a different basis 

than the shares of the ETF? What are the 

current risks and considerations in this 

process where the securities in a 

creation basket settle on a different basis 

than the shares of the ETF itself, such 

as is the case with U.S. Treasury 

securities, which commonly settle on a 

T+1 basis today while the ETF shares 

settle on a T+2 basis? 

93. What time do market 

intermediaries believe would be 

necessary for open-end mutual funds 

and ETFs to publish NAVs in order to 

achieve same-day settlement and why? 

94. What are the reasons 

intermediaries do not submit orders to 

purchase or sell mutual fund shares to 

Fund/SERV or the transfer agent earlier 

on trade date? What are the reasons 

some intermediaries may be delayed in 

the submission of those orders until T+1 

in the current environment? Please be as 

specific as possible and include data if 

available on submission times. What 

would be needed to accelerate these 

timeframes? 

95. Would open-end mutual funds 

potentially establish an earlier cut-off 

time for placing orders to purchase or 

sell fund shares than is currently used 

(i.e., earlier than 4:00 p.m. ET) to 

capture prices for NAV calculations, in 

order to speed the time at which a NAV 

can be published? If so, what time might 

be most likely and why? If different 

funds opted to use different times, 

would this create new market 

opportunities for funds? What 

challenges would this introduce? 

96. The Commission understands that 

some ETFs calculate NAVs more than 

once per day. Are there unique 

challenges and opportunities these 

funds may have with same-day 

settlement? 

97. Currently, Rule 22c–1(a) of the 

Investment Company Act limits the 

ability to transact in fund shares at a 

price other than ‘‘a price based on the 

current net asset value . . . which is 

next computed after receipt of a tender 

of such security for redemption or of an 

order to purchase or sell such security.’’ 

In the event a fund elects to calculate its 

NAV using intra-day prices for the 

underlying securities held in the fund, 

such as utilizing 2:00 p.m. ET prices to 

value its portfolio in order to produce a 

NAV earlier in the day to support sameday settlement, how would this 

limitation impact the acceptance of 

orders to purchase or redeem shares of 

the fund? Would a fund establish a cutoff time for acceptance of orders that is 

based on the time when a snapshot of 

prices is captured to value the fund’s 

securities positions? Would it be 

possible in different scenarios for 

investors to have an information 

advantage and, if so, how? For funds 

that may currently utilize prices for U.S. 

securities prior to the U.S. market close, 

how has such an approach modified 

timelines and processes for acceptance 

of orders and publication of the NAV? 

98. If different funds adopt differing 

policies for the time to capture prices or 

to publish NAVs, and subsequently 

impose different cut-off times for receipt 

of orders pursuant to Rule 22c–1, would 

intermediaries be able to accommodate 

such differences on a fund-specific 

basis? 

99. Might funds consider requiring 

orders to be received by the fund’s 

transfer agent, rather than an 

intermediary, by the cut-off time? Are 

there other ways in which a movement 

to T+0 settlement would affect transfer 

agents’ processes, and if so, how should 

those processes be changed? 

100. If receipt by an intermediary is 

sufficient (as opposed to requiring 

orders be received by the fund’s transfer 

agent by the cut-off time), as is the case 

today, how do intermediaries or others 

monitor intermediary compliance? 

101. Does monitoring of order receipt 

relative to cut-off times differ by types 

of intermediaries? For example, are 

there different processes to monitor 

‘‘authorized agents’’ as opposed to other 

types of intermediaries? What are the 

differences between ‘‘authorized agents’’ 

and other intermediaries? 

102. If ETFs were to utilize an earlier 

time in the day to capture prices of their 

portfolio investments for purpose of 

calculating the ETF’s shares’ NAV (that 

is, the price that would form the basis 

for APs’ purchases and redemptions of 

creation units), how would this affect 


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259T+1 Report, supra note 18, at 13; see also 

supra note 164 and accompanying text (discussing 

the same). Additionally, the industry has 

recommended the adoption of Commission or SRO 

rules requiring: (i) Broker-dealers to obtain an 

agreement from their customers at the outset of the 

relationship or at the time of the trade to participate 

in and to comply with the operational requirements 

of interoperable trade-match systems as a condition 

to settling trades on an RVP/DVP basis; and (ii) 

investment managers to participate in a trade-match 

system, similar to the way broker-dealers and 

institutions are required by the SRO confirmation/ 

affirmation rules to participate in a confirmation/ 

affirmation system. 

260See supra note 259. 

261See T+2 Proposing Release, supra note 30, at 

69258. 262 ISG White Paper, supra note 26, at 26. 

primary market transactions in ETF 

shares? Would this affect secondary 

market ETF share transactions in any 

way, for example, transactions by 

institutional investors who may opt to 

place orders to trade ETFs at the end-ofday NAV? 

103. Should the Commission consider 

elimination of omnibus processing to 

facilitate the adoption of T+0 settlement 

for open-end mutual funds? Since any 

investor account must be maintained by 

at least one party, how does omnibus 

accounting by intermediaries rather 

than maintaining investor-specific 

accounts at each fund’s transfer agent 

reduce costs to investors? 

104. Are there any additional unique 

considerations for open-end mutual 

funds or ETFs that hold non-U.S. 

securities if the Commission were to 

adopt a same-day settlement standard 

while non-U.S. markets may continue 

with longer settlement timeframes, 

including T+1 and T+2? What potential 

liquidity impacts might such funds 

experience? 

5. Institutional Trade Processing 

As discussed throughout this release, 

while significant improvements to the 

infrastructure for institutional trade 

processing have decreased reliance on 

manual activities and enabled more 

transparency into and standardization of 

trade information, several operational 

and technology challenges continue to 

limit the speed, accuracy, and efficiency 

of institutional trade processing, all of 

which would be more acute in a T+0 

environment. 

As discussed previously, the T+1 

Report recommends that allocations for 

all institutional trades be made and 

communicated by 7:00 p.m. on trade 

date and these trades be confirmed and 

affirmed by 9:00 p.m. ET on trade 

date.259 The industry has identified a 

number of issues related to the 

institutional trade process that would 

need to be addressed in a T+1 

settlement cycle, including, but not 

limited to, trade systems and reference 

data, the trade allocations, confirmation 

and affirmation cut-off times, batch 

cycle timing, migration to trade date 

matching, and identification of 

automated vendor solutions to alleviate 

manual processing.260 In addition, 

improvements in the quality and 

standardization of settlement 

instructions, the quality of static 

settlement data maintenance, the use of 

automation and the expansion of 

straight-through processing capabilities 

would all help facilitate higher 

affirmation rates and faster processing. 

As discussed in Part III.D, the 

Commission has previously explained 

that a shortened settlement cycle may 

lead to increased reliance on the use of 

CMSPs, with a focus on improving and 

accelerating the allocation, 

confirmation, and affirmation processes 

and enhancing efficiencies in the 

services and operations of the 

CMSPs.261 Improved automation in the 

settlement process has enabled better 

straight-through processing and 

contributed to increases in affirmation 

rates on trade date and increases in 

settlement rates, with an attendant 

decrease in exceptions and fails. Moving 

to T+1 may promote continued 

improvements in technology and 

operations, encourage incremental 

increases in the utilization by certain 

market participants of CMSPs, and focus 

the industry on improving and 

accelerating the allocation, confirmation 

and affirmation processes by completing 

those processes earlier and more 

efficiently. 

However, it is unclear whether 

addressing these issues would (i) 

facilitate further shortening of the 

settlement cycle beyond T+1; (ii) 

whether these issues would continue to 

be relevant in a T+0 environment; or 

(iii) whether new technologies or 

operational processes would need to be 

designed and implemented to 

accommodate T+0 for institutional trade 

processing. Accordingly, the 

Commission is requesting comment on 

all issues pertaining to improving the 

institutional trade processing in order to 

achieve a T+0 standard settlement cycle. 

In addition, the Commission is seeking 

comment on the following: 

105. What operational, technological 

and regulatory issues related to 

institutional trade processing should be 

considered in further shortening of the 

settlement cycle to T+0, particularly any 

impediments to investors and other 

market participants? 

106. What, if anything, should the 

Commission do to facilitate T+0, 

particularly as it relates to the 

standardization of reference data, the 

use of standardized industry protocols 

by broker-dealers, asset managers, and 

custodians, and the use of matching 

services? 

107. Does moving to T+0 introduce 

any new risks in the processing of 

institutional trades? If so, please 

describe such risks and whether 

mitigation is possible. Can such risks be 

quantified? 

108. What are the benefits and costs 

of settling institutional trades in a T+0 

environment? What are the relative 

challenges for the different market 

participants involved? Do the benefits of 

T+0 accrue to all participants—brokers, 

institutional customers, custodians, or 

matching utilities? Do they accrue to 

large, medium, and small entities? 

109. How would the current systems 

and processes used in the institutional 

post-trade process need to change to 

accommodate a T+0 settlement 

requirement? 

110. Would any or all of the changes 

contemplated by the Industry Working 

Group to address the building blocks 

considered essential for institutional 

trade settlement in T+1 be useful should 

the settlement cycle move to T+0? 

111. How would the allocation, 

confirmation and affirmation process be 

accomplished in a T+0 environment? In 

particular, what timeframes would be 

necessary to ensure settlement on T+0? 

To what extent would the roles of 

CMSPs, broker-dealers, or bank 

custodians need to change to 

accommodate T+0 settlement? To what 

extent does the use of a custodian foster 

or impair a transition to a T+0 

settlement cycle? Please explain. 

112. What effect would T+0 have on 

the relationship between a broker-dealer 

and its customer? What effect would 

T+0 have on the relationship between 

an investor and its custodian? 

6. Securities Lending 

Both the ISG White Paper and the T+2 

Playbook highlighted the potential 

impact shortening the settlement to T+2 

may have on securities lending practices 

in the U.S. For example, the ISG White 

Paper noted that securities lenders may 

have less time to recall loaned 

securities, and securities borrowers 

should be cognizant of the reduced 

timeframe between execution and 

settlement when loaning securities, 

particularly when transacting in hard to 

borrow securities.262 The ISC White 

Paper further stated that service 

providers may need to update their 


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263 Id. 

264T+2 Playbook, supra note 27, at 86. 

265T+1 Report, supra note 18, at 24–25. 

266See, e.g., ISITC Virtual Winter Forum, 

Securities Lending Working Group discussion (Dec. 

13, 2021). 

267This discussion concerns the settlement 

arrangements between investors and their brokers 

or custodians. These arrangements are separate 

from obligations of brokers and custodians to NSCC 

and DTC. 

268See FINRA Rule 11330. 

products and services to accurately 

process such transactions.263

The T+2 Playbook included several 

recommendations regarding actions 

firms should take to address the 

potential impact that shortening the 

standard settlement cycle may have on 

securities lending practices in the 

industry. For example, the T+2 

Playbook recommended that market 

participants’ decisions to loan securities 

should take into account the shortened 

settlement cycle, and stock borrow 

positions should be evaluated to reduce 

exposure to counterparty risk based on 

the shortened settlement cycle.264 More 

recently industry working groups tasked 

with understanding industry 

requirements for shortening the 

standard settlement cycle to T+1 have 

begun to analyze how shortening the 

settlement cycle may require additional 

changes to securities lending 

practices.265

While market participants have yet to 

explore in significant detail how 

shortening the settlement cycle to T+0 

might impact securities lending 

practices in the U.S. markets, the 

Commission preliminarily believes that 

such a move would likely impact these 

practices further, and may necessitate 

further changes to procedures, 

operations and technologies that 

facilitate securities lending and 

borrowing. Additionally, the 

Commission is interested in learning 

whether shortening the standard 

settlement cycle to T+0 could impact 

overall liquidity in the U.S. markets to 

the extent that market participants may 

curtail their participation in the 

securities lending markets in response 

to such a move. 

The Commission is requesting public 

comment regarding all aspects of the 

potential impact that shortening the 

settlement cycle to T+0 could have on 

securities lending in the U.S. In 

particular, the Commission requests 

comment on the following: 

113. To what extent would shortening 

the standard settlement cycle to T+0 

make it difficult for securities lenders to 

timely recall securities on loan? 

114. To what extent would the 

Commission need to amend Regulation 

SHO to accommodate securities lending 

in a T+0 environment? Are there 

changes to Regulation SHO that can be 

made to help facilitate lending in a T+0 

environment? 

115. Please describe any technology 

changes that might be necessary to 

support securities lending operations of 

market participants if the settlement 

cycle were shortened to T+0. Please 

include in any comments descriptions 

of existing technologies that may help 

the Commission identify and 

understand the limitations, if any, of 

such technologies with respect to a T+0 

settlement cycle. 

116. With respect to stock loan 

recalls, are there ways to improve the 

level of coordination between 

investment managers and third-party 

lending agents for underlying funds, 

and to facilitate partial stock loan recalls 

from bulk lending positions aggregated 

from multiple institutional investors? 266

117. To what extent might securities 

lenders need to rely on predictive 

analytics to make decisions regarding 

which securities to recall before lenders 

can be sure such recalls will be 

necessary? What additional costs, if any, 

might be associated with the increased 

use of predictive analytics? 

118. How might shortening the 

standard settlement cycle to T+0 impact 

market participants seeking to borrow 

securities in the U.S. markets? Please 

include discussion regarding the 

possible impact on market participants’ 

ability to borrow securities that might be 

difficult to borrow. 

119. How might shortening the 

standard settlement cycle to T+0 impact 

the decisions of securities lenders and 

borrows to lend and borrow securities, 

respectively? 

120. What impact, if any, would 

shortening the standard settlement cycle 

to T+0 have on the cost of borrowing 

securities in the U.S.? 

121. What impact would shortening 

the settlement cycle to T+0 have on 

costs related to loaning securities (e.g., 

investments in technology 

improvements, analytics, etc.)? 

122. To what extent might shortening 

the standard settlement cycle to T+0 

reduce revenue securities lenders 

generate from loaning securities 

compared with a T+2 or T+1 settlement 

cycle? 

123. What impact, if any, might a T+0 

settlement cycle have on overall 

liquidity in the U.S. markets if such a 

move were to reduce securities lending 

activity? 

124. Please describe any indirect 

impact that shortening the standard 

settlement cycle to T+0 might have on 

market structure or trading activity as a 

result of changes to securities lending in 

the U.S. markets. For example, if 

shortening the settlement cycle to T+0 

would reduce the availability of difficult 

to borrow securities, how would such a 

reduction impact short selling practices 

in the U.S. markets? 

125. Please describe any other 

impacts that shortening the settlement 

cycle to T+0 might have on securities 

lending markets in the U.S. 

7. Access to Funds and/or Prefunding of 

Transactions 

A T+0 settlement cycle may increase 

prefunding requirements for investors, 

shifting some costs from broker-dealers 

and banks to retail and institutional 

investors.267 When purchasing 

securities in the U.S. market, retail and 

institutional investors must be ready to 

provide cash to settle their securities 

transaction. Cash is typically held in a 

short-term sweep account, such as a 

money market fund (MMF) or 

commingled vehicle, and therefore 

requires that the investor redeem cash 

from the sweep vehicle to finance the 

securities transaction. Alternatively, it 

may simply be held in a cash account. 

In some cases, funds will be converted 

to USD from another currency through 

an FX transaction. The specific needs, 

timing and arrangements vary for retail 

versus institutional investors. Retail 

investors may fund their securities 

transactions using cash accounts, and in 

such cases FINRA rules permit the 

brokers to require the payment of 

purchase money to be paid ‘‘upon 

delivery,’’ 268 which functionally means 

no later than settlement. Some brokers 

require their retail clients to prefund 

their transactions—in other words, 

deposit sufficient cash for settlement in 

their brokerage account before the 

broker acts on their orders and executes 

a purchase trade. Alternatively, retail 

clients may be permitted to fund 

transactions through use of a margin 

account. An institutional investor is 

required, pursuant to its contractual 

relationships with its brokers and 

custodians, to provide cash (or have 

credit available) on the day that the 

custodian or broker receives the 

purchased securities and credits them to 

the investor’s account. 

In a T+0 environment, investors will 

not have time after markets close to 

identify and obtain the cash necessary 

for settlement of a securities transaction, 

as settlement of the securities 

transaction will occur on the same day. 

This could have a number of potential 

effects, and the Commission is 

requesting comment on the following: 


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269See T+2 Proposing Release, supra note 30, at 

69241–42. 

270T+2 Adopting Release, supra note 10, at 

15574. 

271 Id. at 15599. Both the T+2 Proposing Release 

and the T+2 Adopting Release stated that, because 

the settlement of FX transactions occurs on T+2, 

market participants who seek to fund a cross-border 

securities transaction with the proceeds of an FX 

transaction would, in a T+1 or T+0 environment, be 

required to settle the securities transaction before 

the proceeds of the FX transaction become available 

and would be required to pre-fund securities 

transactions in foreign currencies. Under these 

circumstances, a market participant would either 

incur opportunity costs and currency risk 

associated with holding FX reserves or be exposed 

to price volatility by delaying securities 

transactions by one business day to coordinate 

settlement of the securities and FX legs. Id. 

272As noted earlier, U.S. equities securities have 

moved from settling T+5 to T+3 and more recently 

to T+2, while U.S. Treasury securities have settled 

on a T+1 basis throughout. Portfolios that invest 

globally have encountered mismatched settlement 

cycles, especially prior to October 6, 2014 when 

twenty-nine European markets moved to T+2 

settlement in an effort to harmonize settlement 

times in Europe. See European Central Securities 

Depositories Association, A Very Smooth 

Transition to T+2, https://ecsda.eu/archives/3793. 

273 Dematerialization of securities occurs where 

securities owned by an investor are not represented 

Continued 

126. Will there be a significant 

increase in prefunding requirements for 

securities transactions across market 

participants? Would some investors 

have to start planning in advance before 

the trade date to accurately position 

necessary funds for redemption and 

securities and cash for settlement? To 

what extent might retail investors alter 

their funding behaviors or their use of 

margin accounts in response to added 

prefunding requirements? 

127. Would a prefunding requirement 

shift risk from the broker-dealer and 

bank community to the investor, both 

retail and institutional? 

128. To the extent that an investor 

would need to redeem shares of a 

money market fund to receive cash to 

settle a separate securities transaction, 

how would such redemptions be 

effected? Would redemptions of money 

market fund shares need to be effected 

in the morning of T+0 to receive cash to 

settle a separate securities transaction 

on the same day? 

129. How would this affect the 

borrowing of cash from clearing 

members, prime brokers, custodians, 

and other liquidity providers when an 

institutional investor cannot 

successfully redeem funds or otherwise 

convert assets to cash in time to settle? 

130. How would T+0 affect FX 

transactions used to finance the 

settlement of transactions? 

131. Could T+0 affect the volume of 

securities trading at various points 

throughout the trading day? 

8. Potential Mismatches of Settlement 

Cycles 

The Commission preliminarily 

believes that shortening the standard 

settlement cycle to T+0 could create 

mismatches between settlement 

timeframes in different markets, or 

could increase the degree to which 

certain settlement timeframes may 

already be mismatched at the time a T+0 

settlement cycle might be implemented. 

For example, most major securities 

markets in non-U.S. jurisdictions 

currently settle transactions on a T+2 

basis, as do FX markets generally. When 

the Commission amended Exchange Act 

Rule 15c6–1(a) in 2017 to shorten the 

standard settlement cycle to T+2, 

several major securities markets had 

already adopted a T+2 settlement cycle, 

and the move to T+2 in the U.S. 

harmonized large portions of the U.S. 

settlement cycle with prevailing 

settlement cycles in those markets.269

In the T+2 Adopting Release the 

Commission stated that the prospective 

harmonization of the standard 

settlement cycle in the U.S. with 

settlement cycles in foreign markets that 

settle transactions on a T+2 settlement 

cycle may reduce the need for some 

market participants engaging in crossborder and cross-asset transactions to 

hedge risks stemming from mismatched 

settlement cycles and reduce related 

financing and borrowing costs, resulting 

in additional benefits.270 The T+2 

Adopting Release also noted that 

shortening the settlement cycle further 

than T+2 at that time could increase 

funding costs for market participants 

who rely on the settlement of FX 

transactions to fund securities 

transactions that settle regular way.271

Whether shortening the standard 

settlement cycle for securities 

transactions in the U.S. to T+0 would in 

fact result in mismatched settlement 

cycles vis-a`-vis major foreign securities 

markets, or the settlement cycle for FX 

transactions, may depend on future 

developments that are unknown at this 

time, including the extent to which 

settlement cycles in those markets might 

be shortening in response to the 

implementation of a shorter settlement 

cycle for securities in the U.S., or in 

response to other future developments 

in global markets. 

The Commission notes that mutual 

funds and investment advisers have 

invested in markets with mismatched 

settlement cycles for many years.272

Many investors evaluate an investment 

portfolio based on traded positions 

without reference to pending or actual 

settlement because entitlement to trade, 

receive income or corporate actions and 

performance calculations generally are 

based on trade-date information. 

Nonetheless, institutional and retail 

investors alike often consider 

anticipated settlement dates when 

managing cash balances to ensure that 

settlements do not conflict or create an 

unexpected shortfall of cash, or an 

unplanned event that results in an 

uninvested cash balance. 

The Commission is interested in 

receiving public comment regarding the 

impact a T+0 standard settlement cycle 

in the U.S. securities markets might 

have on global harmonization of 

settlement cycles, including any 

indirect impact on market participants. 

Specifically the Commission requests 

comment on the following: 

132. Would shortening the standard 

settlement cycle to T+0 in the U.S. 

securities markets result in decreased 

harmonization of settlement cycles 

generally? Which markets would be 

impacted by such decreased 

harmonization? Could solutions be 

applied to mitigate the effects of deharmonization? For example, to what 

extent could other asset classes, such as 

FX, transition to a shorter settlement 

cycle? What are the impediments to 

shortening settlement cycles for these 

other asset classes? Could FX 

transactions transition to a T+0 

settlement cycle? Please explain. 

133. Would certain non-U.S. markets 

move to a T+0 settlement cycle in 

response to a prospective move to T+0 

in the U.S.? 

134. How might shortening the 

standard settlement cycle to T+0 in the 

U.S. impact market participants who 

seek to fund cross-border transactions 

with the proceeds of an FX transaction? 

135. To what extent might any 

adverse impact from increased 

settlement cycle mismatches be 

mitigated if the standard settlement 

cycle in the U.S. is shortened to T+1 

prior to a move to a T+0 standard 

settlement cycle at a later time? 

136. To what extent might monitoring 

of anticipated settlement-date balances 

change if the U.S. moved to a T+1 

settlement cycle? How would such 

monitoring be impacted if the U.S. 

moved to a T+0 standard settlement 

cycle? 

9. Dematerialization 

Currently the vast majority of 

securities asset classes trading in the 

U.S. markets, including government 

securities, options, most mutual fund 

securities, and some municipal bonds, 

are issued in book-entry form only (i.e., 

dematerialized).273 In contrast, other 


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by paper certificates, and transfers of ownership of 

those securities are made through book-entry 

movements. For more information on issues related 

to the use of certificates in the U.S. Markets, see 

Concept Release, supra note 149, at 12932–34. 274 Immobilization of securities occurs where the 

underlying certificate is kept in a securities 

depository (or held in custody for the depository by 

the issuer’s transfer agent) or at a custodian and 

transfers of ownership are recorded through 

electronic book-entry movements between the 

depository or custodian’s internal accounts. These 

types of securities are often referred to as being held 

in ‘‘street name.’’ An issue is partially immobilized 

(as is the case with most equity securities traded on 

an exchange), when the street name positions 

beneficially owned by investors are linked through 

chains of beneficial ownership through 

intermediaries (such as brokers) to the certificate 

immobilized at the securities depository, but 

certificates are still available to investors directly 

registered on the issuer’s books. Id. at 12931 n.107; 

see also Exchange Act Release No. 76743 (Dec. 22, 

2015), 80 FR 81948, 81952 n.39 (Dec. 31, 2015). 

275 DRS facilitates and automates the process 

whereby an investor, generally in equities, can 

establish a direct book-entry position registered in 

the investor’s own name on the issuer’s master 

securityholder file; such DRS issues are maintained 

by 61 transfer agents (as of December 31, 2021) that 

have been admitted to DRS by DTC (out of a total, 

as of September 30, 2021, of 403 registered transfer 

agents). Where an issuer has authorized ownership 

in book-entry form and is serviced by a transfer 

agent that has been admitted by DTC as DRSeligible and an investor currently holds the 

securities in street name form in the investor’s 

broker-dealer account, the investor can arrange, 

assuming the broker-dealer supports DRS servicing 

at DTC, to have its securities electronically 

withdrawn from the account and forwarded to the 

transfer agent. The procedure avoids the risks and 

custodial costs of moving certificates; in response 

to the investor’s instruction to the broker-dealer, the 

investor’s shares are changed into DRS form when 

the transfer agent receives an electronic file from 

DTC specifying the investor’s details supplied by 

the broker-dealer, cancels the prior registration in 

the name of DTC’s Cede & Co. nominee, and reregisters the securities directly in the investor’s 

name, with the investor receiving a statement. 

Conversely, if the investor later elects to transfer the 

securities back to the investor’s broker-dealer 

account (i.e., change the form of ownership of the 

securities from DRS back into street-name form held 

through the broker-dealer account), the investor 

most commonly would request the broker-dealer to 

withdraw the securities from DRS, with the transfer 

agent re-registering the securities in the name of 

DTC’s nominee, and the broker-dealer crediting the 

securities to the investor’s account. Some frictions 

remain: DRS is not authorized by all issuers and not 

available for all registered securities types; a 

number of the transfer agents for DTC-eligible 

issues do not meet DTC’s qualifications to 

participate in DRS; some brokers may not support 

DRS transfers or promptly process investors’ 

instructions to facilitate the transfer of securities 

into DRS form. See Concept Release, supra note 

139, at 12932. 

276The processing of paper securities certificates 

has long been identified as an inefficient and riskladen mechanism by which to hold and transfer 

ownership. Because paper certificates require 

manual processing and multiple touchpoints 

between investors and financial intermediaries, 

their use can result in significant delays and 

expenses in processing securities transactions and 

can raise risk concerns associated with lost, stolen, 

and forged certificates. See id. at 12930–31; Transfer 

Agents Operating Direct Registration System, 

Exchange Act Release No. 35038 (Dec. 1, 1994), 59 

FR 63652, 63653 (Dec. 8, 1994) (‘‘1994 Concept 

Release’’); see also SIA Business Case Report, supra 

note 21, at 10; BCG Study, supra note 22, at 59, 62; 

DTCC, From Physical to Digital: Advancing the 

Dematerialization of U.S. Securities, at 4, 6 (Sept. 

2020) (‘‘DTCC 2020 Dematerialization White 

Paper’’), https://www.dtcc.com/-/media/Files/PDFs/ 

DTCC-Dematerialization-Whitepaper-092020.pdf. 

277See, e.g., William M. Martin, Jr., The 

Securities Markets: A Report with 

Recommendations, Submitted to The Board of 

Governors of the New York Stock Exchange (Aug. 

5, 1971) (‘‘Martin Report’’), https://

www.sechistorical.org/collection/papers/1970/ 

1971_0806_MartinReport.pdf. 

278 Id. DTCC estimates that only a small portion 

of securities positions remains certificated and 

states that requests for certificates are declining, but 

also explains that the risks and costs associated 

with processing the remaining certificates in the 

marketplace are substantial and avoidable. See 

DTCC 2020 Dematerialization White Paper, supra 

note 276, at 4. 

279See DTCC 2020 Dematerialization White 

Paper, supra note 276, at 11. 

280Concept Release, supra note 149, at 12934. 

The Commission also stated in the Concept Release 

that, while investors should have the ability to 

register securities in their own names, it was time 

to explore ways to further reduce certificates in the 

trading environment due to the significant risk, 

inefficiency, and cost related to the use of securities 

certificates. Id. The possibility exists that investors’ 

attachment to the certificate may be based more on 

sentiment than need, particularly in light of the fact 

that today non-negotiable records of ownership 

(e.g., account statements) evidence ownership of 

not only most securities issued in the U.S. but also 

other financial assets, such as money in bank 

accounts. See id. at 12934–35. DRS allows an 

investor to have securities registered in the 

investor’s name without having a certificate issued 

to the investor and the ability to electronically 

transfer securities between the investor’s brokerdealer and the issuer’s transfer agent without the 

risk and delays associated with the use of 

certificates. Id. at 12932. 

281 Id. at 12934. 

282See, e.g., DTCC, Important Notice (May 14, 

2020), https://www.dtcc.com/-/media/Files/pdf/ 

2020/5/14/13402-20.pdf; DTCC, Important Notice 

(Apr. 8, 2020), https://www.dtcc.com/-/media/Files/ 

pdf/2020/4/8/13276-20.pdf. 

283See, e.g., DTCC, Important Notice (Mar. 12, 

2020), https://www.dtcc.com/-/media/Files/pdf/ 

2020/3/13/13099-20.pdf. 

asset classes, such as listed equities, 

unlisted equities that have been 

admitted as DTC-eligible, and some debt 

securities, can be immobilized 274 using 

DTC and dematerialized using the 

Direct Registration System (‘‘DRS’’) 

services enabled by DTC’s facilities, but 

many issuers of these equity and debt 

securities continue to allow their 

investors to obtain paper certificates.275

While the U.S. markets have made 

significant strides over the past twenty 

years in achieving immobilization and 

dematerialization, many industry 

representatives believe that the small 

percentage of securities held in 

certificated form impose unnecessary 

risk and expense to the industry and to 

investors.276 Moreover, the ISG 

previously identified the 

dematerialization of securities 

certificates as a necessary building block 

to achieve shorter settlement 

timeframes.277 The industry has long 

asserted that, despite the reduction in 

the use of paper certificates in the U.S. 

markets, certificates continue to pose 

risks, create inefficiencies and increase 

costs,278 many of which will be 

exacerbated as the settlement cycle 

shortens. Fully transitioning from paper 

certificates to book-entry (i.e., electronic 

records) would not only contribute to a 

more cost-effective, efficient, secure, 

and resilient marketplace by addressing 

operational issues related to recordkeeping, inventory management, 

resilience and controls, but would 

facilitate a more efficient transition to 

shorter settlement cycles.279

The Commission has long advocated 

a reduction in the use of certificates in 

the trading environment by 

immobilizing or dematerializing 

securities and has acknowledged that 

the use of certificates increases the costs 

and risks of clearing and settling 

securities for all parties processing the 

securities, including those involved in 

the National C&S System.280 Most of 

these costs and risks are ultimately 

borne by investors.281 For example, in 

response to the COVID–19 pandemic, 

DTC suspended all physical securities 

processing services for approximately 

six weeks to minimize the risk of 

transmission of COVID–19 among its 

employees, who would otherwise be on 

site at DTC’s vault that holds physical 

securities on deposit.282 While this 

service disruption did not affect the 

electronic book-entry settlement of 

securities transactions, DTC instituted 

alternative methods of handling certain 

transactions, such as the use of letters of 

possession and an emergency rider in 

connection with underwriting new 

securities issues.283

The COVID–19 pandemic has 

highlighted the importance of 

continuing to immobilize or 

dematerialize the U.S. market to 

decrease risks and costs associated with 

physical certificates, but the 

Commission preliminarily believes that 

dematerialization is not a prerequisite to 

shortening the settlement cycle. 

Mechanisms in place today to facilitate 

immobilizing paper certificates can 

adequately address the risk and 

efficiency issues associated with such 

certificates (as evidenced by the 

COVID–19 example above), and can 

accommodate shorter settlement cycles, 

up to and including T+0. In particular, 

DRS provides a viable alternative to 

street-name holding for those investors 

who do not want to hold securities at a 

broker-dealer or who want their 

securities registered in their own 


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284 Due to the expanded use in today’s market, 

DRS is considered a viable alternative to holding 

physical certificates, allowing transfers to be made 

relatively quickly and without the risk and delays 

associated with the use of certificates. See DTCC 

2020 Dematerialization White Paper, supra note 

276, at 4 n.2. 

285Specifically, DTC participants can use the 

linkages enabled by DTC and qualified FAST 

transfer agents to withdraw securities 

electronically. Upon the investor’s request, a broker 

can use DRS, if available for the particular 

securities issue, to transfer securities from the 

broker’s account (where it is in DTC’s nominee 

registration) to be held in an investor’s own name 

on the transfer agent’s book. DTC’s balance in that 

security drops and the investor receives a statement 

of its holdings, rather than a certificate. 

286Exchange Act Section 3(f) requires the 

Commission, when it is engaged in rulemaking 

pursuant to the Exchange Act and is required to 

consider or determine whether an action is 

necessary or appropriate in the public interest, to 

consider, in addition to the protection of investors, 

whether the action will promote efficiency, 

competition, and capital formation. See 15 U.S.C. 

78c(f). In addition, Exchange Act Section 23(a)(2) 

requires the Commission, when making rules 

pursuant to the Exchange Act, to consider among 

other matters the impact that any such rule would 

have on competition and not to adopt any rule that 

would impose a burden on competition that is not 

necessary or appropriate in furtherance of the 

purposes of the Exchange Act. See 15 U.S.C. 

78w(a)(2). 

287See supra Part III.B.2; infra Part V.C. 

288See supra Part III.B. 

289See supra Part III.C. 

name.284 Investors can use the linkages 

enabled by DTC to transfer their 

securities back and forth between DRS 

at the transfer agent and book-entry 

form on the books of a broker-dealer as 

it suits their needs.285

The key issues appear to be 

processing time and access to transfers 

between DRS at the transfer agent and 

book-entry form at the broker-dealer. 

With regard to processing time, the 

Commission is concerned that brokerdealer processes, whereby an investor 

requests that its broker-dealer change 

the investor’s form of ownership from 

certificate form into street name form at 

the broker-dealer, can take days or 

weeks. Those processing timeframes 

will need to be significantly compressed 

or completed in real time to 

accommodate T+0. Broker-dealers might 

require investors to complete the 

process of transferring paper certificates 

into book-entry either through the 

transfer agent or the broker-dealer prior 

to trade execution, thereby allowing the 

broker-dealer assurances the securities 

can be delivered in time for settlement. 

With regard to access, only investors 

who have an issuer and transfer agent 

that offer DRS services can move their 

securities between DRS at the transfer 

agent and book-entry form at the brokerdealer. 

The Commission is seeking comment 

on these issues, as well as a number of 

other issues related to the consideration 

of dematerialization as a building block 

to achieving T+0. 

137. Is the elimination of the paper 

certificate necessary to achieve T+0? If 

so, why? If not, why? 

138. Would further dematerialization, 

immobilization, or some combination 

thereof, without the elimination of the 

paper certificate, be sufficient to 

facilitate a T+0 settlement cycle? Please 

describe how and why this would or 

would not be the case. 

139. If further dematerialization or 

immobilization is necessary to achieve 

T+0 settlement, what needs to be done 

on either an operational or regulatory 

basis to achieve such an objective? 

Please be as specific as possible, 

particularly where your answer relates 

to regulatory initiatives. For example, 

should the Commission consider 

mandating the dematerialization of 

certain types of securities? If so, which 

securities? Should such a mandate be 

limited to securities traded on an 

exchange, or focused on particular asset 

classes? 

140. Should any potential 

requirements regarding 

dematerialization be imposed in stages 

or, instead, be comprehensive from the 

outset? For example, should such 

requirements be phased by addressing: 

(i) First, newly listed companies, (ii) 

then, new issues of securities by all 

listed companies, and (iii) all 

outstanding securities? 

141. In order to better accommodate a 

T+0 environment, what changes, if any, 

would need to be made to broker-dealer 

processes for responding to investor 

requests to transfer investors’ paper 

certificates into holdings in street-name 

book-entry form at the broker-dealer? 

142. Do laws in other jurisdictions 

present any barriers to achieving 

complete dematerialization, such as 

laws that require an issuer to issue 

certificates or prohibit book-entry 

ownership? If so, please describe the 

jurisdictions and the specific laws that 

raise potential issues. 

143. What are the costs and benefits 

with requiring investors who hold paper 

certificates to complete the transfer of 

such securities into book-entry prior to 

the execution of a trade? 

V. Economic Analysis 

The Commission is mindful of the 

economic effects that may result from 

the proposed amendments, including 

the benefits, costs, and the effects on 

efficiency, competition, and capital 

formation.286 This section analyzes the 

expected economic effects of the 

proposed rules relative to the current 

baseline, which consists of the current 

market and regulatory framework. 

This economic analysis begins with a 

discussion of the risks inherent in the 

settlement cycle and how a reduction in 

the cycle’s length may affect the 

management and mitigation of these 

risks. Next, it discusses market frictions 

that potentially impair the ability of 

market participants to shorten the 

settlement cycle in the absence of a 

Commission rule. These settlement 

cycle risks and market frictions frame 

our subsequent analysis of the rule’s 

benefits and costs. The Commission 

preliminarily believes that the proposed 

amendment to Exchange Act Rule 15c6– 

1(a) and the proposed deletion of 

Exchange Act Rule 15c6–1(c) ameliorate 

some or all of these market frictions and 

thus reduce the risks inherent in the 

settlement process. 

The Commission preliminarily 

believes that, to successfully shorten the 

settlement timeframes to T+1 while 

minimizing settlement fails in the 

institutional trade processing 

environment, will require further 

enhancing automation, standardization, 

and the percentage of trades that are 

allocated, confirmed, and affirmed by 

the end of the trade date.287 To this end 

the Commission is also proposing (i) 

new Rule 15c6–2 to require that, where 

parties have agreed to engage in an 

allocation, confirmation, or affirmation 

process, a broker or dealer would be 

prohibited from effecting or entering 

into a contract for the purchase or sale 

of a security (other than an exempted 

security, a government security, a 

municipal security, commercial paper, 

bankers’ acceptances, or commercial 

bills) on behalf of a customer unless 

such broker or dealer has entered into 

a written agreement with the customer 

that requires the allocation, 

confirmation, affirmation, or any 

combination thereof, be completed no 

later than the end of the day on trade 

date in such form as may be necessary 

to achieve settlement in compliance 

with Rule 15c6–1(a),288 (ii) an 

amendment to Rule 204–2 under the 

Advisers Act to require investment 

advisers that are parties to agreements 

under Exchange Act Rule 15c6–2 to 

maintain a time stamped record of 

confirmations received, and when 

allocations and affirmations were sent to 

a broker or dealer,289 and (iii) new Rule 

17Ad–27 under the Exchange Act to 

require policies and procedures that 

require CMSPs facilitate the ongoing 

development of operational and 

technological improvements associated 

with institutional trade processing, 


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290See supra Part III.D. 

291This applies to the general case of a 

transaction that is not novated to a CCP. As 

described above, in its role as a CCP, NSCC 

becomes counterparty to both initial parties to a 

centrally cleared transaction. In the case of such 

transactions, while each initial party is not exposed 

to the risk that its original counterparty defaults, 

both are exposed to the risk of CCP default. 

Similarly, the CCP is exposed to the risk that either 

initial party defaults. 

292More generally, because total variance over 

multiple days is equal to the sum of daily variances 

and variables related to the correlation between 

daily returns, total variance increases with time so 

long as daily returns are not highly negatively 

correlated. See, e.g., Morris H. DeGroot, Probability 

and Statistics 216 (Addison-Wesley Publishing Co., 

1986). 

293Similarly, a seller whose counterparty fails 

faces similar risks with respect to the security price 

but in the opposite direction. 

294The relationship is approximate because some 

trades may settle early or, if both counterparties 

agree at the time of the transaction, settle after the 

time limit in Rule 15c6–1(a). 

295See T+2 Proposing Release, supra note 30, at 

69251 (discussing the entities that compose the 

clearance and settlement infrastructure for U.S. 

securities markets). 

which may in turn also facilitate further 

shortening of the settlement cycle in the 

future.290

The discussion of the economic 

effects of the proposed amendment to 

Rule 15c6–1(a), the proposed deletion of 

Rule 15c6–1(c), the proposed Rule 

15c6–2, the proposed amendment to 

Rule 204–2, and the proposed Rule 

17Ad–27 begins with a baseline of 

current practices. The economic 

analysis then discusses the likely 

economic effects of the proposal as well 

as its effects on efficiency, competition, 

and capital formation. The Commission 

has, where practicable, attempted to 

quantify the economic effects expected 

to result from this proposal. In some 

cases, however, data needed to quantify 

these economic effects is not currently 

available or otherwise publicly 

available. As noted below, the 

Commission is unable to quantify 

certain economic effects and solicits 

comment, including estimates and data 

from interested parties, that could help 

inform the estimates of the economic 

effects of the proposal. 

A. Background 

As previously discussed, the 

proposed amendment to Rule 15c6–1(a) 

would prohibit, unless otherwise 

expressly agreed to by both parties at 

the time of the transaction, a brokerdealer from effecting or entering into a 

contract for the purchase or sale of 

certain securities that provides for 

payment of funds and delivery of 

securities later than the first business 

day after the date of the contract subject 

to certain exceptions provided in the 

rule. In its analysis of the economic 

effects of the proposal, the Commission 

has considered the risks that market 

participants, including broker-dealers, 

clearing agencies, and institutional and 

retail investors are exposed to during 

the settlement cycle and how those risks 

change with the length of the cycle. 

The settlement cycle spans the time 

between when a trade is executed and 

when cash and securities are delivered 

to the seller and buyer, respectively. 

During this time, each party to a trade 

faces the risk that its counterparty may 

fail to meet its obligations to deliver 

cash or securities. When a counterparty 

fails to meet its obligations to deliver 

cash or securities, the non-defaulting 

party may bear costs as a result. For 

example, if the non-defaulting party 

chooses to enter into a new transaction, 

it will be with a new counterparty and 

will occur at a potentially different 

price.291 The length of the settlement 

cycle influences this risk in two ways: 

(i) Through its effect on counterparty 

exposures to price volatility, and (ii) 

through its effect on the value of 

outstanding obligations. 

First, additional time allows asset 

prices to move further away from the 

price of the original trade. For example, 

in a simplified model where daily asset 

returns are statistically independent, the 

variance of an asset’s return over t days 

is equal to t multiplied by the daily 

variance of the asset’s return. Thus 

when the daily variance of returns is 

constant, the variance of returns 

increases linearly in the number of 

days.292 In other words, the more days 

that elapse between when a trade is 

executed and when a counterparty 

defaults, the larger the variance of price 

change will be, and the more likely that 

the asset’s price will deviate from the 

execution price. The price change could 

be positive or negative, but in the event 

of a price increase, the buyer must pay 

more than the original execution price, 

and in the event of a price decrease, the 

buyer may buy the security for less than 

the original execution price.293

Second, the length of the settlement 

cycle directly influences the quantity of 

transactions awaiting settlement. For 

example, assuming no change in 

transaction volumes, the volume of 

unsettled trades under a T+1 settlement 

cycle is approximately half the volume 

of unsettled trades under a T+2 

settlement cycle.294 Thus, in the event 

of a default, counterparties would have 

to enter into a new transaction, or 

otherwise close out approximately half 

as many trades under a T+1 standard 

settlement cycle than under a T+2 

standard. This means that for a given 

adverse move in prices, the financial 

losses resulting from a counterparty 

default will be approximately half as 

large under a T+1 standard settlement 

cycle. 

Market participants manage and 

mitigate settlement risk in a number of 

specific ways.295 Generally, these 

methods entail costs to market 

participants. In some cases, these costs 

may be explicit. For instance, clearing 

brokers typically explicitly charge 

introducing brokers to clear trades. 

Other costs are implicit, such as the 

opportunity cost of assets posted as 

collateral or limits placed on the trading 

activities of a broker’s customers. 

The Commission acknowledges that, 

given current trading volumes and 

complexity, certain market frictions may 

prevent securities markets from 

shortening the settlement cycle in the 

absence of regulatory intervention. The 

Commission has considered two key 

market frictions related to investments 

required to implement a shorter 

settlement cycle. The first is a 

coordination problem that arises when 

some of the benefits of actions taken by 

one or more market participants are 

only realized when other market 

participants take a similar action. For 

example, under the current regulatory 

structure, if a particular institutional 

investor were to make a technological 

investment to reduce the time it requires 

to match and allocate trades without a 

corresponding action by its clearing 

broker-dealers, the institutional investor 

cannot fully realize the benefits of its 

investment, as the settlement process is 

limited by the capabilities of the 

clearing agency for trade matching and 

allocation. More generally, when every 

market participant must bear the costs 

of an upgrade for the entire market to 

enjoy a benefit, the result is a 

coordination problem, where each 

market participant may be reluctant to 

make the necessary investments until it 

can be reasonably certain that others 

will also do so. In general, these 

coordination problems may be resolved 

if all parties can credibly commit to the 

necessary infrastructure investments. 

Regulatory intervention is one possible 

way of coordinating market participants 

to undertake the investments necessary 

to support a shorter settlement cycle. 

Such intervention could come through 

Commission rulemaking or through a 

coordinated set of SRO rule changes. 

In addition to coordination problems, 

a second market friction related to the 

settlement cycle involves situations 

where one market participant’s 


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296See Ananth Madhavan et al., Risky Business: 

The Clearance and Settlement of Financial 

Transactions 4–5 (U. Pa. Wharton Sch. Rodney L. 

White Ctr. for Fin. Res. Working Paper No. 40–88, 

1988), https://

rodneywhitecenter.wharton.upenn.edu/wp-content/ 

uploads/2014/04/8840.pdf; see also John H. 

Cochrane, Asset Pricing 15 (Princeton Univ. Press 

rev. ed. 2009) (defining the idiosyncratic 

component of any payoff as the part that is 

uncorrelated with the discount factor). 

297See infra Parts V.C.1 (Benefits) and V.C.2 

(Costs). 

298For example, the ability to compute an 

accurate net asset value (‘‘NAV’’) within the 

settlement timeframe is a key component for 

settlement of ETF transactions. See, e.g., Barrington 

Partners White Paper, An Extraordinary Week: 

Shared Experiences from Inside the Fund 

Accounting Systems Failure of 2015 (Nov. 2015), 

https://www.mfdf.org/docs/default-source/ 

fromjoomla/uploads/blog_files/ 

sharedexperiencefromfasystemfailure2015.pdf. 

299See supra Part III.B; see also supra notes 146– 

148 and accompanying text. 

300See supra note 155. 

301See supra note 156. 

302See supra note 157. 

303See supra note 57. 

investments result in benefits for other 

market participants. For example, if a 

market participant invests in a 

technology that reduces the error rate in 

its trade matching, not only does it 

benefit from fewer errors, but its 

counterparties and other market 

participants may also benefit from more 

robust trade matching. However, 

because market participants do not 

necessarily take into account the 

benefits that may accrue to other market 

participants (also known as 

‘‘externalities’’) when market 

participants choose the level of 

investment in their systems, the level of 

investment in technologies that reduce 

errors might be less than efficient for the 

entire market. More generally, 

underinvestment may result because 

each participant only takes into account 

its own costs and benefits when 

choosing which infrastructure 

improvements or investments to make, 

and does not take into account the costs 

and benefits that may accrue to its 

counterparties, other market 

participants, or financial markets 

generally. 

Moreover, because market 

participants that incur similar costs to 

move to a shorter settlement cycle may 

nevertheless experience different levels 

of economic benefits, there is likely 

heterogeneity across market participants 

in the demand for a shorter settlement 

cycle. This heterogeneity may 

exacerbate coordination problems and 

underinvestment. Market participants 

that do not expect to receive direct 

benefits from settling transactions 

earlier may lack incentives to invest in 

infrastructure to support a shorter 

settlement cycle and thus could make it 

difficult for the market as a whole to 

realize the overall risk reduction that 

the Commission believes a shorter 

settlement cycle may bring. 

For example, the level and nature of 

settlement risk exposures vary across 

different types of market participants. A 

market participant’s characteristics and 

trading strategies can influence the level 

of settlement risk it faces. For example, 

large market participants will generally 

be exposed to more settlement risk than 

small market participants because they 

trade in larger volume. However, large 

market participants also trade across a 

larger variety of assets and may face less 

idiosyncratic risk in the event of 

counterparty default if the portfolio of 

trades that may have to be replaced is 

diversified.296 As a corollary, a market 

participant who trades a single security 

in a single direction against a given 

counterparty may face more 

idiosyncratic risk in the event of 

counterparty failure than a market 

participant who trades in both 

directions with that counterparty. 

Furthermore, the extent to which a 

market participant experiences any 

economic benefits that may stem from a 

shortened standard settlement cycle 

likely depends on the market 

participant’s relative bargaining power. 

While larger intermediaries may 

experience direct benefits from a shorter 

settlement cycle as a result of being 

required to post less collateral with a 

CCP, if they do not effectively compete 

for customers through fees and services 

as a result of market power, they may 

pass only a portion of these cost savings 

through to their customers.297

The Commission preliminarily 

believes that the proposed amendment 

to Rule 15c6–1(a), which would shorten 

the standard settlement cycle from T+2 

to T+1 may mitigate the market frictions 

of coordination and underinvestment 

described above. The Commission 

believes that by mitigating these market 

frictions and for the reasons discussed 

below, the transition to a shorter 

standard settlement cycle will reduce 

the risks inherent in the clearance and 

settlement process. 

The shorter standard settlement cycle 

might also affect the level of operational 

risk in the National C&S System. 

Shortening the settlement cycle by one 

day would reduce the time that market 

participants have to resolve any errors 

that might occur in the clearance and 

settlement process. Tighter operational 

timeframes and linkages required under 

a shorter standard settlement cycle 

might introduce new fragility that could 

affect market participants, specifically 

an increased risk that operational issues 

could affect transaction processing and 

related securities settlement.298

In part to lessen the likelihood that 

shortening the settlement cycle might 

negatively affect operational risk, the 

Commission and market participants 

have emphasized on multiple occasions 

the importance of accelerating the 

institutional trade clearance and 

settlement process by improving, among 

other things, the allocation, 

confirmation and affirmation processes 

for the clearance and settlement of 

institutional trades, as well as 

improvements to the provision of 

central matching and electronic trade 

confirmation.299 A 2010 DTCC paper 

published when the standard settlement 

cycle in the U.S. was still T+3, 

described same-day affirmation as ‘‘a 

prerequisite’’ of shortening the 

settlement cycle because of its impact 

on settlement failure rates and 

operational risk.300 According to 

previously cited statistics published by 

DTCC in 2011 regarding affirmation 

rates achieved through industry 

utilization of a certain matching/ETC 

provider, on average, 45% of trades 

were affirmed on trade date, 90% were 

affirmed by T+1, and 92% were 

affirmed by noon on T+2.301 Currently, 

only about 68% of trades achieve 

affirmation by 12:00 midnight at the end 

of trade date.302 While these numbers 

have improved over time, the 

improvements have been incremental 

and fallen short of achieving an affirmed 

confirmation by the end of trade date as 

is considered a securities industry best 

practice.303 Accordingly, and as 

described more fully below, to achieve 

the maximum efficiency and risk 

reduction that may result from 

completing the allocation, confirmation 

and affirmation process on trade date, 

and to facilitate shortening the 

settlement cycle to T+1 or shorter, the 

Commission is proposing new Rule 

15c6–2 under the Exchange Act to 

facilitate trade date completion of 

institutional trade allocations, 

confirmations and affirmations. 

B. Economic Baseline and Affected 

Parties 

The Commission uses as its economic 

baseline the clearance and settlement 

process as it exists at the time of this 

proposal. In addition to the current 

process that is described in Part II.B 

above, the baseline includes rules 

adopted by the Commission, including 

Commission rules governing the 

clearance and settlement system, SRO 


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304Certain SRO rules currently define ‘‘regular 

way’’ settlement as occurring on T+2 and, as such, 

would need to be amended in connection with 

shortening the standard settlement cycle to T+1. 

See, e.g., MSRB Rule G–12(b)(ii)(B); FINRA Rule 

11320(b). Further, certain timeframes or deadlines 

in SRO rules key off the current settlement date, 

either expressly or indirectly. In such cases, the 

SROs may also need to amend these rules. See 

supra Part III.E.5 (further discussing the impact of 

the proposal on SRO rules and operations). 

305A second DTCC subsidiary, DTC, also a 

clearing agency registered with the Commission, 

operates a CSD with respect to securities 

transactions in the U.S. in several types of eligible 

securities including, among others, equities, 

warrants, rights, corporate debt and notes, 

municipal bonds, government securities, assetbacked securities, depositary receipts and money 

market instruments. 

306See supra note 62. 

307See NSCC, Q1 2021 Fixed Income Clearing 

Corporation and NSCC Quantitative Disclosure for 

Central Counterparties, at 20 (June 2021), http://

www.dtcc.com/legal/policy-and-compliance. 

308Calculated as $2.251 trillion × 2% = $45.02 

billion. 

309For a description of NSCC’s financial 

responsibility requirements for registered brokerdealers, see NSCC Rules and Procedures, at 336 

(effective Jan. 24, 2022) (‘‘NSCC Rules and 

Procedures’’), https://www.dtcc.com/∼/media/Files/ 

Downloads/legal/rules/nscc_rules.pdf. Pursuant to 

Rule 11 and Addendum K to NSCC’s Rules and 

Procedures, NSCC guarantees the completion of 

CNS settling trades (‘‘NSCC trade guaranty’’) that 

have been validated. Id. at 74–79, 363. 

310See, e.g., id. at 89. 

311See Board of Governors of the Federal Reserve 

System, Statistical Release Z.1, Financial Accounts 

of the United States: Flow of Funds, Balance Sheets, 

and Integrated Macroeconomic Accounts, at 130 

(Sept. 23, 2021), available at https://

www.federalreserve.gov/releases/z1/20210923/ 

z1.pdf. 

312FOCUS Reports, or ‘‘Financial and 

Operational Combined Uniform Single’’ Reports, 

are monthly, quarterly, and annual reports that 

broker-dealers generally are required to file with the 

Commission and/or SROs pursuant to Exchange Act 

Rule 17a–5, 17 CFR 240.17a–5. 

rules,304 as well as rules adopted by 

regulators in other jurisdictions to 

regulate securities settlement in those 

jurisdictions. The following section 

discusses several additional elements of 

the baseline that are relevant for the 

economic analysis of the proposed 

amendment to Rule 15c6–1(a) because 

they are related to the financial risks 

faced by market participants that clear 

and settle transactions and the specific 

means by which market participants 

manage these risks. 

1. Central Counterparties 

NSCC, a subsidiary of DTCC, is a 

clearing agency registered with the 

Commission that operates the CCP for 

U.S. equity securities transactions.305

One way that NSCC mitigates the credit, 

market, and liquidity risk that it 

assumes through its novation and 

guarantee of trades as a CCP is by 

multilateral netting of securities trades’ 

delivery and payment obligations across 

its members. By offsetting its members’ 

obligations, NSCC reduces the aggregate 

market value of securities and cash it 

must deliver to clearing members. While 

netting reduces NSCC’s settlement 

payment obligations by a daily average 

of 98%,306 it does not fully eliminate 

the risk posed by unsettled trades 

because NSCC is responsible for 

payments or deliveries on any trades 

that it cannot fully net. NSCC reported 

clearing an average of approximately 

$2.251 trillion each day during the first 

quarter of 2021,307 suggesting an average 

net settlement obligation of 

approximately $45 billion each day.308

The aggregate settlement risk faced by 

NSCC is also a function of the 

probability of clearing member default. 

NSCC manages the risk of clearing 

member default by imposing certain 

financial responsibility requirements on 

its members. For example, as of 2021, 

broker-dealer members of NSCC that are 

not municipal securities brokers and do 

not intend to clear and settle 

transactions for other broker-dealers 

must have excess net capital of $500,000 

over the minimum net capital 

requirement imposed by the 

Commission and $1,000,000 over the 

minimum net capital requirement if the 

broker-dealer member clears for other 

broker-dealers.309 Furthermore, each 

NSCC member is subject to other 

ongoing membership requirements, 

including a requirement to furnish 

NSCC with assurances of the member’s 

financial responsibility and operational 

capability, including, but not limited to, 

periodic reports of its financial and 

operational condition.310

In addition to managing the member 

default risk, NSCC also takes steps to 

mitigate the impacts of a member 

default. For example, in the normal 

course of business, CCPs are generally 

not exposed to market or liquidity risk 

because they expect to receive every 

security from a seller they are obligated 

to deliver to a buyer and they expect to 

receive every payment from a buyer that 

they are obligated to deliver to a seller. 

However, when a clearing member 

defaults, the CCP can no longer expect 

the defaulting member to deliver 

securities or make payments. CCPs 

mitigate this risk by requiring clearing 

members to make contributions of 

financial resources to the CCP so that it 

may make payments or deliver 

securities in the event of a member 

default. The level of financial resources 

CCPs require clearing members to 

commit may be based on, among other 

things, the market and liquidity risk of 

a member’s portfolio, the correlation 

between the assets in the member’s 

portfolio and the member’s own default 

probability, and the liquidity of the 

assets posted as collateral. 

2. Market Participants—Investors, 

Broker-Dealers, and Custodians 

As discussed in Part II.B, brokerdealers serve both retail and 

institutional customers. Aggregate 

statistics from the Board of Governors of 

the Federal Reserve System suggest that 

at the end of the second quarter 2021, 

U.S. households held approximately 

40% of the value of corporate equity 

outstanding, and 57% of the value of 

mutual fund shares outstanding, which 

provide a general picture of the share of 

holdings by retail investors.311

In the third quarter of 2021, 

approximately 3,500 broker-dealers filed 

FOCUS Reports 312 with FINRA. These 

firms varied in size, with median assets 

of approximately $1.3 million and 

average assets of approximately $1.5 

billion. The top 1% of broker-dealers 

held 81% of the assets of broker-dealers 

overall, indicating a high degree of 

concentration in the industry. Of the 

approximately 3,500 filers, as of the end 

of 2020, 156 reported self-clearing 

public customer accounts, while 1,126 

reported acting as an introducing broker 

and sending orders to another brokerdealer for clearing and not self-clearing. 

Broker-dealers that identified 

themselves as self-clearing brokerdealers, on average, had higher total 

assets than broker-dealers that identified 

themselves as introducing brokerdealers. While the decision to self-clear 

may be based on many factors, this 

evidence is consistent with the 

argument that there may currently be 

high barriers to entry for providing 

clearing services as a broker-dealer. 

Clearing broker-dealers face liquidity 

risks as they are obligated to make 

payments to clearing agencies on behalf 

of customers who purchase securities. 

As discussed in more detail below, 

because customers of a clearing broker 

may default on their payment 

obligations to the broker, particularly 

when the price of a purchased security 

declines before settlement, clearing 

broker-dealers routinely seek to reduce 

the risks posed by their customers. For 

example, clearing broker-dealers may 

require customers to contribute 

financial resources in the form of 

margin to margin accounts, to pre-fund 

purchases in cash accounts, or may 

restrict the use of customers’ unsettled 

funds. These measures are in many 

ways analogous to measures taken by 

clearing agencies to reduce and mitigate 

the risks posed by their clearing 

members. In addition, clearing brokerdealers may also mitigate the risks 


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313See infra Parts V.C.2 and V.C.4. 

314See Victoria Lynn Messman, Securities 

Processing: The Effects of a T+3 System on Security 

Prices (May 2011) (Ph.D. dissertation, University of 

Tennessee—Knoxville), http://trace.tennessee.edu/ 

utk_graddiss/1002/; Josef Lakonishok & Maurice 

Levi, Weekend Effects on Stock Returns: A Note, 37 

J. Fin. 883 (1982), https://www.jstor.org/stable/pdf/ 

2327716.pdf; Ramon P. DeGennaro, The Effect of 

Payment Delays on Stock Prices, 13 J. Fin. Res. 133 

(1990), http://onlinelibrary.wiley.com/doi/10.1111/ 

j.1475-6803.1990.tb00543.x/abstract. 

315See supra note 84. 

316See Open-End Fund Liquidity Risk 

Management Programs; Swing Pricing; Re-Opening 

of Comment Period for Investment Company 

Reporting Modernization Release, Investment 

Company Act Release No. 31835 (Sept. 22, 2015), 

80 FR 62274, 62285 n.100 (Oct. 15, 2015). 

317See ICI, 2021 Investment Company Fact Book, 

at 40 (May 2021) (‘‘2021 ICI Fact Book’’), available 

at https://www.ici.org/. This comprises 9,027 openend mutual funds, including mutual funds that 

invest primarily in other mutual funds, and 2,296 

ETFs, including ETFs that invest primarily in other 

ETFs. 

318See id. at 41. 

319See id. at 40–41. 

320 15 U.S.C. 80a–22(e). 

321 17 CFR 270.22c–1. 

322See infra note 425. 

323See supra Part II.B.1; see also T+2 Proposing 

Release, supra note 30, at 69246. 

posed by customers by charging higher 

transaction fees that reflect the value of 

the customer’s option to default, thereby 

causing customers to internalize the cost 

of default that is inherent in the 

settlement process.313 While not 

directly reducing the risk posed by 

customers to clearing members, these 

higher transaction fees at least allocate 

to customers a portion of the expected 

direct costs of customer default. 

Another way the settlement cycle may 

affect transaction prices involves the 

potential use of funds during the 

settlement cycle. To the extent that 

buyers may use the cash to purchase 

securities during the settlement cycle 

for other purposes, they may derive 

value from the length of time it takes to 

settle a transaction. Testing this 

hypothesis, studies have found that 

sellers demand compensation for the 

benefit that buyers receive from 

deferring payment during the settlement 

cycle and that this compensation is 

incorporated in equity returns.314

The settlement process also exposes 

investors to certain risks. The length of 

the settlement cycle sets the minimum 

amount of time between when an 

investor places an order to sell 

securities and when the customer can 

expect to have access to the proceeds of 

that sale. Investors take this into 

account when they plan transactions to 

meet liquidity needs. For example, 

under T+2 settlement, investors who 

experience liquidity shocks, such as 

unexpected expenses that must be met 

within one day, could not rely on 

obtaining funding solely through a sale 

of securities because the proceeds of the 

sale would not typically be available 

until the end of the second day after the 

sale. One possible strategy to deal with 

such a shock under T+2 settlement 

would be to borrow to meet payment 

obligations on day T+1 and repay the 

loan on the following day with the 

proceeds from a sale of securities, 

incurring the cost of one day of interest. 

Another strategy that investors may use 

is to hold financial resources to insure 

themselves from liquidity shocks. 

3. Investment Companies and 

Investment Advisers 

Shares issued by investment 

companies may settle on different 

timeframes. ETFs, certain closed-end 

funds, and mutual funds that are sold by 

brokers generally settle on T+2.315 By 

contrast, mutual fund shares that are 

directly purchased from the fund 

generally settle on T+1. Mutual funds 

that settle on a different basis than the 

underlying investments currently face 

liquidity risk as a result of a mismatch 

between the timing of mutual fund 

share transaction settlement and the 

timing of fund portfolio security 

transaction order settlements. Mutual 

funds may manage these particular 

liquidity needs by, among other 

methods, using cash reserves, back-up 

lines of credit, or interfund lending 

facilities to provide cash to cover the 

settlement mismatch.316 As of the end of 

2020, there were 11,323 open-end funds 

(including money market funds and 

ETFs).317 The assets of these funds were 

approximately $29.3 trillion.318 Of the 

11,323 funds noted, 2,296 were ETFs 

with combined assets of $5.5 trillion.319

Under Section 22(e) of the Investment 

Company Act, an open-end fund 

generally is required to pay 

shareholders who tender shares for 

redemption within seven days of their 

tender.320 Open-end fund shares that are 

sold through broker-dealers must be 

redeemed within two days of a 

redemption request because brokerdealers are subject to Rule 15c6–1(a). 

Furthermore, Rule 22c–1 under the 

Investment Company Act,321 the 

‘‘forward pricing’’ rule, requires funds, 

their principal underwriters, and 

dealers to sell and redeem fund shares 

at a price based on the current NAV 

next computed after receipt of an order 

to purchase or redeem fund shares, even 

though cash proceeds from purchases 

may be invested or fund assets may be 

sold in subsequent days in order to 

satisfy purchase requests or meet 

redemption obligations. 

Based on Investment Adviser 

Registration Depository data as of 

December 2020, approximately 13,804 

advisers registered with the Commission 

are required to maintain copies of 

certain books and records relating to 

their advisory business. The 

Commission further estimates that 2,521 

registered advisers required to maintain 

copies of certain books and records 

relating to their advisory business 

would not be required to make and keep 

the proposed required records because 

they do not have any institutional 

advisory clients.322 Therefore, the 

remaining 11,283 of these advisers, or 

81.74% of the total registered advisers 

required to maintain copies of certain 

books and records relating to their 

advisory business, would enter a 

contract with a broker or dealer under 

proposed Rule 15c6–2 and therefore be 

subject to the related proposed 

amendment to Rule 204–2 under the 

Advisers Act (i.e., to retain copies of 

confirmations received, and any 

allocation and each affirmation sent, 

with a date and time stamp for each 

allocation (if applicable) and affirmation 

that indicates when the allocation or 

affirmation was sent to the broker or 

dealer). 

4. Current Market for Clearance and 

Settlement Services 

As described in Part II.B, two 

affiliated entities, NSCC and DTC, 

facilitate clearance and settlement 

activities in U.S. securities markets in 

most instances. There is limited 

competition in the provision of the 

services that these entities provide. 

NSCC is the CCP for trades between 

broker-dealers involving equity 

securities, corporate and municipal 

debt, and UITs for the U.S. market. DTC 

is the CSD that provides custody and 

book-entry transfer services for the vast 

majority of securities transactions in the 

U.S. market involving equities, 

corporate and municipal debt, money 

market instruments, ADRs, and ETFs. 

CMSPs electronically facilitate 

communication among a broker-dealer, 

an institutional investor or its 

investment adviser, and the institutional 

investor’s custodian to reach agreement 

on the details of a securities trade, 

thereby creating binding terms.323 As 

discussed further in Part III.D, FINRA 

currently requires broker-dealers to use 

a clearing agency, such as DTC or a 

CMSP, or a qualified vendor under the 


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324See supra note 181 and accompanying text. 

325See, e.g., Omgeo Study, supra note 155, at 12; 

see also T+1 Report, supra note 18, at 26. 

326Matthew Stauffer, Managing Director, Head of 

Institutional Trade Processing at DTCC, stated, 

‘‘The findings of our survey highlight the benefits 

of leveraging automated post-trade solutions to 

reduce the costs of operational functions and the 

risk inherent in manual processes.’’ See DTCC, 

DTCC Identifies Seven Areas of Broker Cost Savings 

as a Result of Greater Post-Trade Automation (Nov. 

18, 2020), https://www.dtcc.com/news/2020/ 

november/18/dtcc-identifies-seven-areas-of-brokercost-savings-as-a-result-of-greater-post-tradeautomation; 

327See Statement by The Depository Trust & 

Clearing Corporation, U.S. Securities and Exchange 

Commission Securities Lending and Short Sales 

Roundtable, at 3 (Sept. 30, 2009), https://

www.sec.gov/comments/4-590/4590-32.pdf; see also 

T+1 Report, supra note 18, at 26. 

328See Messman, supra note 314. 

rule to complete delivery-versuspayment transactions with their 

customers.324

Broker-dealers compete to provide 

services to retail and institutional 

customers. Based on the large number of 

broker-dealers, there is likely a high 

degree of competition among brokerdealers. However, the markets that 

broker-dealers serve may be segmented 

along lines relevant for the analysis of 

competitive effects of the proposed 

amendment to Rule 15c6–1(a). As noted 

above, the number of broker-dealers that 

self-clear public customer accounts is 

smaller than the set of broker-dealers 

that introduce and do not self-clear. 

This could mean that introducing 

broker-dealers compete more 

intensively for customers than clearing 

broker-dealers. Further, clearing brokerdealers must meet requirements set by 

NSCC and DTC, such as financial 

responsibility requirements and clearing 

fund requirements. These requirements 

represent barriers to entry for brokers 

that may wish to become clearing 

broker-dealers, limiting competition 

among such entities. 

Competition for customers affects 

how the costs associated with the 

clearance and settlement process are 

allocated among market participants. In 

managing the expected costs of risks 

from their customers and the costs of 

compliance with SRO and Commission 

rules, clearing broker-dealers decide 

what fraction of these costs to pass 

through to their customers in the form 

of fees and margin requirements, and 

what fraction of these costs to bear 

themselves. The level of competition 

that a clearing broker-dealer faces for 

customers will dictate the extent to 

which it is able to pass these costs 

through to its customers. 

In addition, several factors affect the 

current levels of efficiency and capital 

formation in the various functions that 

make up the market for clearance and 

settlement services. First, at a general 

level, market participants occupying 

various positions in the clearance and 

settlement system must post or hold 

liquid financial resources, and the level 

of these resources is a function of the 

length of the settlement cycle. For 

example, NSCC collects clearing fund 

contributions from members to help 

ensure that it has sufficient financial 

resources in the event that one of its 

members defaults on its obligations to 

NSCC. As discussed above, the length of 

the settlement cycle is one determinant 

of the size of NSCC’s exposure to 

clearing members. As another example, 

mutual funds may manage liquidity 

needs by, among other methods, using 

cash reserves, back-up lines of credit, or 

interfund lending facilities to provide 

cash. These liquidity needs, in turn, are 

related to the mismatch between the 

timing of mutual fund transaction order 

settlements and the timing of fund 

portfolio security transaction order 

settlements. 

Holding liquid assets solely for the 

purpose of mitigating counterparty risk 

or liquidity needs that arise as part of 

the settlement process could represent 

an allocative inefficiency. That is, 

because firms that are required to hold 

these assets might prefer to put them to 

alternative uses and because these assets 

may be more efficiently allocated to 

other market participants who value 

them for their fundamental risk and 

return characteristics rather than for 

their value as collateral. To the extent 

that any intermediaries between buyer 

and seller who facilitate clearance and 

settlement of the trade bear costs as a 

result of inefficient allocation of 

collateral assets, these inefficiencies 

may be reflected in higher transaction 

costs. 

The settlement cycle may also have 

more direct impacts on transaction 

costs. As noted above, clearing brokerdealers may charge higher transaction 

fees to reflect the value of the 

customer’s option to default and these 

fees may cause customers to internalize 

the cost of the default options inherent 

in the settlement process. However, 

these fees also make transactions more 

costly and may influence the 

willingness of market participants to 

efficiently share risks or to supply 

liquidity to securities markets. Taken 

together, inefficiencies in the allocation 

of resources and risks across market 

participants may serve to impair capital 

formation. 

Finally, market participants may 

make processing errors in the clearance 

and settlement process.325 Market 

participants have stated that manual 

processing and a lack of automation 

result in processing errors.326 Although 

some of these errors may be resolved 

within the settlement cycle and not 

result in a failed trade, those that are not 

may result in failed trades, which 

appear in the failure to deliver data.327

Further, market participants may 

incorporate the likelihood that 

processing errors result in delays in 

payments or deliveries into securities 

prices.328

Figure 5 shows total fails to deliver in 

shares by month from January 2016 

through November 2021. The change in 

the U.S. settlement cycle from T+3 to 

T+2 became effective in September 

2017. Although processing errors are 

only one reason a trade may result in a 

fail to deliver, there is no marked 

change in the fails data around the 

previous shortening of the settlement 

cycle. 


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329See supra Part III.A.2. 

330See supra note 307, at 14. 

331See id. at 20. 

332 In today’s environment, ETFs and certain 

closed-end funds clear and settle on a T+2 basis. 

Open-end funds (i.e., mutual funds) generally settle 

on a T+1 basis, except for certain retail funds which 

typically settle on T+2. Thus, the proposed 

amendment to Rule 15c6–1(a) would require ETFs, 

closed-end funds, and mutual funds settling on a 

T+2 basis to revise their settlement timeframes. 

C. Analysis of Benefits, Costs, and 

Impact on Efficiency, Competition, and 

Capital Formation 

1. Benefits 

The proposed amendment and new 

rules would likely yield benefits 

associated with the reduction of risk in 

the settlement cycle. By shortening the 

settlement cycle, the proposed 

amendment would reduce both the 

aggregate market value of all unsettled 

trades and the amount of time that CCPs 

or the counterparties to a trade may be 

subject to market and credit risk from an 

unsettled trade.329 First, holding 

transaction volumes constant, the 

market value of transactions awaiting 

settlement at any given point in time 

under a T+1 settlement cycle will be 

approximately one half lower than 

under the current T+2 settlement cycle. 

Using the risk mitigation framework 

described in Part V.B.1, based on 

published statistics from the first 

quarter of 2021 330 and holding average 

dollar volumes constant, the aggregate 

notional value of unsettled transactions 

at NSCC would fall from nearly $90 

billion to approximately $45 billion.331

Second, a market participant that 

experiences counterparty default and 

enters into a new transaction under a 

T+2 settlement cycle is exposed to more 

market risk than would be the case 

under a T+1 settlement cycle. As a 

result, market participants that are 

exposed to market, credit, and liquidity 

risks would be exposed to less risk 

under a T+1 settlement cycle. This 

reduction in risk may also extend to 

mutual fund transactions conducted 

with broker-dealers that currently settle 

on a T+2 basis.332 To the extent that 

these transactions currently give rise to 

counterparty risk exposures between 

mutual funds and broker-dealers, these 

exposures may decrease as a 

consequence of a shorter settlement 

cycle. In addition, a shorter standard 

settlement cycle would reduce liquidity 

risks that could arise by allowing 

investors to obtain the proceeds of 

securities transactions sooner. These 

risks affect all market participants, are 

difficult to diversify away, and require 

resources to manage and mitigate. 

CCPs require clearing members to 

post financial resources in order to 

secure members’ obligations to deliver 

cash and securities to the CCP. Clearing 

members in turn impose fees on their 

customers, e.g., introducing brokerdealers, institutional investors, and 

retail investors. The margin 

requirements required by the CCP are a 

function of the risk posed to the CCP by 

the potential default of the clearing 

member. That risk is a function of 

several factors including the value of 

trades submitted for clearing but not yet 

settled and the volatility of the 

securities prices that make up those 

unsettled trades. As these factors are an 

increasing function of the time to 

settlement, by reducing settlement from 

T+2 to T+1, a CCP may require less 

collateral from its members, and the 

CCP’s members may, in turn, reduce 

fees that they may pass down to other 

market participants, including 

introducing broker-dealers, institutional 

investors, and retail investors. 

Any reduction in clearing brokerdealers’ required margin would provide 

multiple benefits. First, financial 

resources that are used to mitigate the 

risks of the clearance and settlement 

process can be put to alternative uses. 

Reducing the financial risks associated 

with the overall clearance and 

settlement process would reduce the 

amount of collateral required to mitigate 

these risks, which would reduce the 

costs that market participants bear to 

manage and mitigate these risks and the 

allocative inefficiencies that may stem 


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333See supra Part V.B (further discussing 

financial resources collected to mitigate and 

manage financial risks). 

334See BCG Study, supra note 22, at 10. 

According to SIFMA, average daily trading volume 

in U.S. equities grew from $253.1B in 2011 to 

$564.7B in 2021, an increase of 123%. See CBOE 

Exchange, Inc., and SIFMA, US Equities and 

Related Statistics (Jan. 3, 2022), https://

www.sifma.org/resources/research/us-equity-andrelated-securities-statistics/us-equities-and-relatedstatistics-sifma/. Price volatility, as measured by the 

standard deviation of the price, is concave in time, 

which means that as a period of time increases, 

volatility will increase, but at a decreasing rate. 

This suggests that the reduction in price volatility 

from moving from T+2 settlement to T+1 settlement 

is larger than the reduction in price volatility from 

moving from T+3 settlement to T+2 settlement. 

These two facts suggest that the estimated reduction 

in clearing fund contributions would be more than 

$25 million per year. 

335See Peter F. Christoffersen & Francis X. 

Diebold, How Relevant is Volatility Forecasting for 

Financial Risk Management?, 82 Rev. Econ. & Stat. 

12 (2000), http://www.mitpressjournals.org/doi/abs/ 

10.1162/003465300558597#.V6xeL_nR-JA. The 

paper shows that volatility can be predicted in the 

short run, and concludes that short run forecastable 

volatility would be useful for risk management 

practices. 

336See Sam Schulhofer-Wohl, Externalities in 

securities clearing and settlement: Should securities 

CCPs clear trades for everyone? (Fed. Res. Bank Chi. 

Working Paper No. 2021–02, 2021). 

337This occurred in January 2021 following 

heightened interest in certain ‘‘meme’’ stocks. See 

supra Part II.A; see also Staff Report on Equity and 

Options Market Structure Conditions in Early 2021, 

at 31–35 (Oct. 14, 2021), https://www.sec.gov/files/ 

staff-report-equity-options-market-structionconditions-early-2021.pdf. 

338See supra note 332; see also supra Part V.B.3. 

339See supra note 90 and accompanying text. 

340See supra Part II.B. 

341See supra Part III.A.3. 

from risk management practices.333

Second, assets that are valuable because 

they are particularly suited to meeting 

financial resource obligations may be 

better allocated to market participants 

that hold these assets for their 

fundamental risk and return 

characteristics. This improvement in 

allocative efficiency may improve 

capital formation. 

A portion of the savings from less 

costly risk management under a T+1 

standard settlement cycle relative to a 

T+2 standard settlement cycle may flow 

through to investors. Investors may be 

able to profitably redeploy financial 

resources that were once needed to fund 

higher clearing fees, for example. 

Market participants might also 

individually benefit through reduced 

clearing fund deposit requirements. In 

2012, the BCG Study estimated that cost 

reductions related to reduced clearing 

fund contributions resulting from 

moving from a T+3 to a T+2 settlement 

cycle would amount to $25 million per 

year.334 In addition, a shorter settlement 

cycle might reduce liquidity risk by 

allowing investors to obtain the 

proceeds of their securities transactions 

sooner. Reduced liquidity risk may be a 

benefit to individual investors, but it 

may also reduce the volatility of 

securities markets by reducing liquidity 

demands in times of adverse market 

conditions, potentially reducing the 

correlation between market prices and 

the risk management practices of market 

participants.335

Shortening the settlement cycle may 

reduce incentives for investors to trade 

excessively in times of high 

volatility.336 Such incentives exist 

because investors do not always bear the 

full cost of settlement risk for their 

trades. Broker-dealers incur costs in 

managing settlement risk with CCPs. 

Broker-dealers can recover the average 

cost of risk management from their 

customers. However, if a particular 

trade has above-average settlement risk, 

such as when market prices are 

unusually volatile, it is difficult for 

broker-dealers to pass along these higher 

costs to their customers because fees 

typically depend on factors other than 

those such as market volatility that 

impact settlement risk. In extreme cases 

broker-dealers may prevent a customer 

from trading.337 Shortening the 

settlement cycle reduces the cost of risk 

management and should reduce any 

such incentives to trade more than they 

otherwise would if they bore the full 

cost of settlement risk for their trades. 

The benefits of harmonized settlement 

cycles may also accrue to mutual funds. 

As described above,338 transactions in 

mutual fund shares typically settle on a 

T+1 basis even when transactions in 

their portfolio securities settle on a T+2 

basis. As a result, there is a one-day 

mismatch between when these funds 

make payments to shareholders that 

redeem shares and when they receive 

cash proceeds for portfolio securities 

they sell. This mismatch represents a 

source of liquidity risk for mutual 

funds. Shortening the settlement cycle 

by one day will mitigate the liquidity 

risk due to this mismatch. As a result, 

mutual funds that settle on a T+1 basis 

may be able to reduce the size of cash 

reserves or the size of back up credit 

facilities that some currently use to 

manage liquidity risk from the 

mismatch in settlement cycles. Further, 

mutual funds may be able to invest 

incoming cash more quickly when 

funds have net subscriptions, because 

the settlement time for the purchase of 

fund shares will be aligned with the 

settlement time for portfolio 

investments, thus allowing funds to 

maximize their exposure to their 

defined investment strategies. 

The Commission preliminarily 

believes that these benefits are unlikely 

to be substantially mitigated by the 

exceptions to Rule 15c6–1(a) discussed 

in Part III.A. Market participants that 

rely on Rule 15c6–1(b) in order to 

transact in limited partnership interests 

that are not listed on an exchange or for 

which quotations are not disseminated 

through an automated quotation system 

of a registered securities association 

would likely continue to rely on the 

exception if the Commission adopts the 

proposed amendment to Rule 15c6–1(a). 

There may be transactions covered by 

Rule 15c6–1(b) that in the past did not 

make use of this exception because they 

settled within two business days, but 

that may require use of this exception 

under the proposed amendment to 

paragraph (a) of the rule because they 

require more than one business day to 

settle. However, these markets are 

opaque and the Commission does not 

have data on transactions in these 

categories that currently settle within 

two days but that might make use of this 

exception under the proposed 

amendment to Rule 15c6–1(a). In 

addition, pursuant to Rule 15c6–1(b), 

the Commission has granted an 

exemption from Rule 15c6–1 for 

securities that do not have facilities for 

transfer or delivery in the U.S.339

Market participants relying on this 

exemption are unlikely to be impacted 

by a shortening of the standard 

settlement cycle to T+1. 

Finally, the extent to which different 

types of market participants would 

experience any benefits that stem from 

the proposed amendment to Rule 15c6– 

1(a) may depend on their market power. 

As discussed above,340 the clearance 

and settlement system involves a 

number of intermediaries that provide a 

range of services between the ultimate 

buyer and seller of a security. Those 

market participants that have a greater 

ability to negotiate with customers or 

service providers may be able to retain 

a larger portion of the operational cost 

savings from a shorter settlement cycle 

than others, as they may be able to use 

their market power to avoid passing 

along the cost savings to their clients. 

The Commission also proposes to 

delete Rule15c6–1(c) that establishes a 

T+4 settlement cycle for firm 

commitment offerings for securities that 

are priced after 4:30 p.m. ET, unless 

otherwise expressly agreed to by the 

parties at the time of the transaction.341

As discussed above, paragraph (c) is 

rarely used in the current T+2 

settlement environment, but the IWG 

expects a T+1 standard settlement cycle 

would increase reliance on paragraph 


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342T+1 Report, supra note 18, at 33–35. 

343See supra Part III.B.1. 

344See supra note 168. 

345See DTCC Modernizing Paper, supra note 59. 

346See supra Part III.C. 

347See supra Part III.D; see also supra Part III.D.1 

(further discussing the term ‘‘straight-through 

processing’’). 

348See supra note 347. 

349See supra note 185. 

(c).342 The Commission preliminarily 

believes that establishing T+1 as the 

standard settlement cycle for these firm 

commitment offerings, and thereby 

aligning the settlement cycle with the 

standard settlement cycle for securities 

generally, would reduce exposures of 

underwriters, dealers, and investors to 

credit and market risk, and better ensure 

that the primary issuance of securities is 

available to settle secondary market 

trading in such securities. The 

Commission believes that harmonizing 

the settlement cycle for such firm 

commitment offerings with secondary 

market trading, to the greatest extent 

possible, limits the potential for 

operational risk. Further, should there 

be a need to settle beyond T+1, perhaps 

because of complex documentation 

requirements of certain types of 

offerings, the parties to the transaction 

can agree to a longer settlement period 

pursuant to paragraph (d) when they 

enter the transaction. 

In addition to the amendment to Rule 

15c6–1(a) and proposed deletion of Rule 

15c6–1(c), the Commission proposes 

three additional rules applicable, 

respectively, to broker-dealers, 

investment advisers, and CMSPs to 

improve the efficiency of managing the 

processing of institutional trades under 

the shortened timeframes that would be 

available in a T+1 environment. First, 

the Commission proposes new Rule 

15c6–2 to require that a broker-dealer 

enter into contracts with institutional 

customers that can achieve the 

allocation, confirmation, and 

affirmation of a securities transaction no 

later than the end of trade date.343

The Commission preliminarily 

believes that implementing a T+1 

standard settlement cycle, as well as any 

potential further shortening beyond 

T+1, will necessitate significant 

increases in same-day affirmation rates 

because timely affirmations will be 

critical to achieving timely settlement. 

In this way, the Commission also 

preliminarily believes that proposed 

Rule 15c6–2 should facilitate timely 

settlement as a general matter because it 

will accelerate the transmission and 

affirmation of trade data to trade date, 

improving the accuracy and efficiency 

of institutional trade processing and 

reducing the potential for settlement 

failures. The Commission further 

anticipates that proposed Rule 15c6–2 

would likely encourage further 

development of automated and 

standardized practices among market 

participants more generally, particularly 

those that continue to rely on manual 

processes to achieve settlement. 

Although same-day affirmation is 

considered a best practice for 

institutional trade processing, adoption 

is not universal across market 

participants or even across all trades 

entered by a given participant. Market 

participants continue to use hundreds of 

‘‘local’’ matching platforms, and rely on 

inconsistent SSI data independently 

maintained by broker-dealers, 

investment managers, custodians, subcustodians, and agents on separate 

databases. As discussed in Part II.B, 

processing institutional trades requires 

managing the back and forth involved 

with transmitting and reconciling trade 

information among the parties, 

functionally matching and re-matching 

with the counterparties to the trade, as 

well as custodians and agents, to 

facilitate settlement. It also requires 

market participants to engage in 

allocation processes, such as allocationlevel cancellations and corrections, 

some of which are still processed 

manually.344 This collection of 

redundant, often manual steps and the 

use of uncoordinated (i.e., not 

standardized) databases can lead to 

delays, exceptions processing, 

settlement fails, wasted resources, and 

economic losses. The total industry 

headcount employed in managing 

today’s pre-settlement and settlement 

fails management process is in the 

thousands, and additional costs and 

risks resulting from the inability to 

settle efficiently are significant.345 The 

Commission believes that proposed 

Rule 15c6–2 should increase the 

percentage of trades that achieve an 

affirmed confirmation on trade date and 

should help facilitate an orderly 

transition to T+1. Proposed Rule 15c6– 

2 would also improve the efficiency of 

the settlement cycle by incentivizing 

market participants to commit to 

operational and technological upgrades 

that facilitate same-day affirmation to 

eliminate, among other things, manual 

operations, while also reducing 

operational risk and promoting 

readiness for shortening the settlement 

cycle. 

Second, the Commission proposes to 

amend the recordkeeping obligations of 

investment advisers to ensure that they 

are properly documenting their related 

allocations and affirmations, as well as 

the confirmations they receive from 

their broker-dealers.346 The proposed 

amendment to Rule 204–2 would 

require advisers to time and date stamp 

records of any allocation and each 

affirmation. The Commission believes 

that the timing of communicating 

allocations to the broker or dealer is a 

critical pre-requisite to ensure that 

confirmations can be issued in a timely 

manner, and affirmation is the final step 

necessary for an adviser to acknowledge 

agreement on the terms of the trade or 

alert the broker or dealer of a 

discrepancy. The Commission believes 

the proposed recordkeeping 

requirements would help advisers to 

establish that they have met their 

obligations to achieve a matched trade. 

Finally, the Commission proposes a 

requirement for CMSPs to establish, 

implement, maintain, and enforce 

written policies and procedures 

designed to facilitate straight-through 

processing.347 Under the rule, a CMSP 

facilitates straight-through processing 

when its policies and procedures enable 

its users to minimize, to the greatest 

extent that is technologically 

practicable, the need for manual input 

of trade details or manual intervention 

to resolve errors and exceptions that can 

prevent settlement of the trade.348

The Commission believes that 

increasing the efficiency of using a 

CMSP can reduce costs and risks 

associated with processing institutional 

trades and improve the efficiency of the 

National C&S System. CMSPs have 

become increasingly connected to a 

wide variety of market participants in 

the U.S.,349 increasing the need to 

reduce risks and inefficiencies that may 

result from use of a CMSPs’ systems. 

Because the proposed rule would 

preclude reliance on service offerings at 

CMSPs that rely on manual processing, 

the Commission preliminarily believes 

the proposed rule will better position 

CMSPs to provide services that not only 

reduce risk generally but also help 

facilitate an orderly transition to a T+1 

standard settlement cycle, as well as 

potential further shortening of the 

settlement cycle in the future. The 

proposed requirement would support 

the benefits derived from a shortening of 

the settlement cycle and would mitigate 

any subsequent potential increase in 

fails due to the reduced time to 

remediate any errors in trades. 

Proposed Rule 17Ad–27 also would 

require a CMSP to submit every twelve 

months to the Commission a report that 

describes the following: (i) The CMSP’s 

current policies and procedures for 

facilitating straight-through processing; 


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350See supra Part III.D.2. 

351 Industry sources have suggested some updates 

to systems and processes might yield operational 

cost savings after the initial update. E.g., ‘‘While 

there may be . . . up-front implementation costs to 

transition the industry to T+1, the industry foresees 

long-term cost reduction for market participants, 

and by extension, costs borne by end investors, 

given the benefits of moving to T+1 settlement.’’ 

T+1 Report, supra note 18, at 9; see infra Part 

V.C.5.a) for industry estimates of the costs and 

benefits of the proposed amendment to Rule 15c6– 

1(a). 

352See, e.g., CME Rulebook, Ch. 13, § 1302 

(‘‘‘Spot FX Transaction’’’ means a currency 

purchase and sale that is bilaterally settled by the 

counterparties via an actual delivery of the relevant 

currencies within two Business Days.’’), https://

www.cmegroup.com/rulebook/CME/. U.S. and 

Canadian dollar spot FX transactions settle on the 

next business day. Id. Ch. 13, Appendix. 

353See supra Part V.C.1 for additional discussion 

regarding the impact of broker-dealer market power. 

See infra Part V.C.5.b)(3) for quantitative estimates 

of the costs to broker-dealers. 

(ii) its progress in facilitating straightthrough processing during the twelve 

month period covered by the report; and 

(iii) the steps the CMSP intends to take 

to facilitate and promote straightthrough processing during the twelve 

month period that follows the period 

covered by the report.350 The proposed 

requirement would also inform the 

Commission and the public, particularly 

the direct and indirect users of the 

CMSP, as to the progress being made 

each year to advance implementation of 

straight-through processing with respect 

to the allocation, confirmation, 

affirmation, and matching of 

institutional trades, the communication 

of messages among the parties to the 

transactions, and the availability of 

service offerings that reduce or 

eliminate the need for manual 

processing. 

Proposed Rule 17Ad–27 would 

require the CMSP to file the report on 

EDGAR using Inline XBRL, a structured 

(machine-readable) data language. 

Requiring a centralized filing location 

and a machine-readable data language 

for the reports would facilitate access, 

retrieval, analysis, and comparison of 

the disclosed straight-through 

processing information across different 

CMSPs and time periods by the 

Commission and the public, thus 

potentially augmenting the 

informational benefits of the report 

requirement. 

2. Costs 

The Commission preliminarily 

believes that compliance with a T+1 

standard settlement cycle would involve 

initial fixed costs to update systems and 

processes.351 The Commission does not 

have all of the data necessary to form its 

own firm-level estimates of the costs of 

updates to systems and processes, as the 

types of data needed to form these 

estimates are difficult or impossible for 

the Commission to collect. However, the 

Commission has used inputs provided 

by industry studies discussed in this 

release to quantify these costs to the 

extent possible in Part V.C.5. In 

addition, the Commission encourages 

commenters to provide any information 

or data on the costs to market 

participants of the proposed rule. 

The operational cost burdens 

associated with the proposed 

amendment to Rule 15c6–1(a) for 

different market participants might vary 

depending on each market participant’s 

degree of direct or indirect interconnectivity to the clearance and 

settlement process, regardless of size. 

For example, market participants that 

internally manage more of their own 

post-trade processes would directly 

incur more of the upfront operational 

costs associated with the proposed 

amendment to Rule 15c6–1(a), because 

they would be required to directly 

undertake more of the upgrades and 

testing necessary for a T+1 standard 

settlement cycle. As mentioned in Part 

II.B, other market participants might 

outsource the clearance and settlement 

of their transactions to third-party 

providers of back-office services. The 

exposures to the operational costs 

associated with shortening the standard 

settlement cycle would be indirect to 

the extent that third-party service 

providers pass through the costs of 

infrastructure upgrades to their 

customers. The degree to which 

customers bear operational costs 

depends on their bargaining position 

relative to third-party providers. Large 

customers with market power may be 

able to avoid internalizing these costs, 

while small customers in a weaker 

negotiation position relative to service 

providers may bear the bulk of these 

costs. 

Further, changes to initial and 

ongoing operational costs may make 

some self-clearing market participants 

alter their decision to continue 

internally managing the clearance and 

settlement of their transactions. Entities 

that currently internally manage their 

clearance and settlement activity may 

prefer to restructure their businesses to 

rely instead on third-party providers of 

clearance and settlement services that 

may be able to amortize the initial fixed 

cost of upgrade across a much larger 

volume of transaction activity. 

In addition, the shortening of the 

settlement cycle may increase the need 

for some market participants engaging 

in cross-border and cross-asset 

transactions to hedge risks stemming 

from mismatched settlement cycles, 

resulting in additional costs. For 

example, under the proposed T+1 

settlement cycle, a market participant 

selling a security in European equity 

markets to fund a purchase of securities 

in U.S. markets would face a one day lag 

between settlement in Europe and 

settlement in the U.S. The market 

participant could choose between 

bearing an additional day of market risk 

in the U.S. trading markets by delaying 

the purchase by a day, or funding the 

purchase of U.S. shares with short-term 

borrowing. Additionally, because the FX 

market has a T+2 settlement cycle,352

the market participant would also be 

faced with a choice between bearing an 

additional day of currency risk due to 

the need to sell Euros as part of the 

transaction, or to incur the cost related 

to hedging away this risk in the forward 

or futures market. 

The way that different market 

participants would likely bear costs as 

a result of the proposed amendment to 

Rule 15c6–1(a) may also vary based on 

their business structure. For example, a 

shorter standard settlement cycle will 

require payment for securities that settle 

regular-way by T+1 rather than T+2. 

Generally, regardless of current funding 

arrangements between investors and 

broker-dealers, removing one business 

day between execution and settlement 

would mean that broker-dealers could 

choose between requiring investors to 

fund the purchase of securities one 

business day earlier while extending the 

same level of credit they do under T+2 

settlement, or providing an additional 

business day of funding to investors. In 

other words, broker-dealers could pass 

through some of the costs of a shorter 

standard settlement cycle by imposing 

the same shorter cycle on investors, or 

they could pass these costs on to 

investors by raising transactions fees to 

compensate for the additional business 

day of funding the broker-dealer may 

choose to provide. The extent to which 

these costs get passed through to 

customers may depend on, among other 

things, the market power of the brokerdealer. If a broker-dealer does not face 

significant competition, its market 

power may enable it to recover the 

entire initial investment cost from its 

customers. On the other hand, a brokerdealer that faces perfect competition for 

its customers may be unable to pass 

along any of these costs to its 

customers.353

However, broker-dealers that 

predominantly serve retail investors 

may experience the burden of an earlier 

payment requirement differently from 

broker-dealers with more institutional 


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354See infra Part V.C.5.b)(3) for additional 

discussion regarding retail investors and their 

broker-dealers. 

355 17 CFR 242.200 et seq. 

356See supra Part III.E.2. 

357The Commission is also soliciting comment on 

the impact of shortening the settlement cycle on 

compliance with Rule 10b–10 under the Exchange 

Act and broker-dealer obligations with regard to 

prospectus delivery. See supra Parts III.E.3 and 

III.E.4. However, based on current practices and 

comments received by the Commission to the T+2 

proposing release, the Commission preliminarily 

believes shortening the settlement cycle to T+1 will 

not impact compliance with these rules. Id. 

358See supra Part III.E.1. 

359 17 CFR 240.15c3–3(m). 

360 17 CFR 240.15c3–1(c)(9). 

361See, e.g., 17 CFR 240.15c3–1(a)(2)(i), (a)(2)(v); 

17 CFR 240.15c3–3(k)(1)(iii), (k)(2)(i), (k)(2)(ii); 17 

CFR 240.17a–5(e)(1)(A); 17 CFR 240.17a–13(a)(3). 

clients or large custodian banks because 

of the way retail investors fund their 

accounts. Retail investors may find it 

difficult to accelerate payments 

associated with their transactions, 

which may cause broker-dealers who 

are unwilling to extend additional credit 

to retail investors to instead require that 

these investors pre-fund their 

transactions.354 These broker-dealers 

may also experience costs unrelated to 

funding choices. For instance, retail 

investors may require additional or 

different services such as education 

regarding the impact of the shorter 

standard settlement cycle. 

Finally, a shorter settlement cycle 

may result in higher costs associated 

with liquidating a defaulting member’s 

position, as a shorter horizon may result 

in larger price impacts, particularly for 

less liquid assets. For example, when a 

clearing member defaults, NSCC is 

obligated to fulfill its trade guarantee 

with the defaulting member’s 

counterparty. One way it accomplishes 

this is by liquidating assets from 

clearing fund contributions from 

clearing members. However, liquidating 

assets in shorter periods of time can 

have larger adverse impacts on the 

prices of the assets. Shortening the 

standard settlement cycle from two 

business days to one business day could 

reduce the amount of time that NSCC 

would have to liquidate its assets, 

which may exacerbate the price impact 

of liquidation. 

3. Economic Implications Through 

Other Commission Rules 

As noted in Part III.E, the proposed 

amendment to Rule 15c6–1(a), by 

shortening the standard settlement 

cycle, could have an ancillary impact on 

the means by which market participants 

comply with existing regulatory 

obligations that relate to the settlement 

timeframe. The Commission also 

provided illustrative examples of 

specific Commission rules that include 

such requirements or are otherwise are 

keyed-off settlement date, including 

Regulation SHO,355 and certain 

provisions included in the 

Commission’s financial responsibility 

rules.356 357

Financial markets and regulatory 

requirements have evolved significantly 

since the Commission adopted Rule 

15c6–1 in 1993. Market participants 

have responded to these developments 

in diverse ways, including 

implementing a variety of systems and 

processes, some of which may be 

unique to specific market participants 

and their businesses, and some of which 

may be integrated throughout business 

operations of certain market 

participants. Because of the broad 

variety of ways in which market 

participants currently satisfy regulatory 

obligations pursuant to Commission 

rules, in most circumstances it is 

difficult to identify those practices that 

market participants would need to 

change in order to meet these other 

obligations. Under these circumstances, 

and without additional information, the 

Commission is unable to provide an 

estimate of the ancillary economic 

impact that the proposed amendment to 

Rule 15c6–1(a) would have on how 

market participants comply with other 

Commission rules. The Commission 

invites commenters to provide 

quantitative and qualitative information 

about these potential economic effects. 

In certain cases, based on information 

about current market practices, the 

Commission preliminarily believes that 

the proposed amendment to Rule 15c6– 

1(a) would be unlikely to change the 

means by which market participants 

comply with existing regulatory 

requirements. In these cases, the 

Commission believes that market 

participants would not incur significant 

increased costs of compliance from such 

regulatory requirements from shortening 

the settlement cycle to T+1. 

In other cases, however, the proposed 

amendment may incrementally increase 

the costs associated with complying 

with other Commission rules where 

such rules potentially require brokerdealers to engage in purchases of 

securities. Two examples of these types 

of rules are Regulation SHO and the 

Commission’s financial responsibility 

rules. In most instances, Regulation 

SHO governs the timeframe in which a 

‘‘participant’’ of a registered clearing 

agency must close out a fail to deliver 

position by purchasing or borrowing 

securities.358 Similarly, some of the 

Commission’s financial responsibility 

rules relate to actions or notifications 

that reference the settlement date of a 

transaction. For example, Exchange Act 

Rule 15c3–3(m) 359 uses the settlement 

date to prescribe the timeframe in which 

a broker-dealer must complete certain 

sell orders on behalf of customers. As 

noted above, the term ‘‘settlement date’’ 

is also incorporated into paragraph 

(c)(9) of Rule 15c3–1,360 which explains 

what it means to ‘‘promptly transmit’’ 

funds and ‘‘promptly deliver’’ securities 

within the meaning of paragraphs 

(a)(2)(i) and (a)(2)(v) of Rule 15c3–1. As 

explained above, the concepts of 

promptly transmitting funds and 

promptly delivering securities are 

incorporated in other provisions of the 

financial responsibility rules.361 Under 

the proposed amendment to Rule 15c6– 

1(a), the timeframes included in these 

rules will be one business day closer to 

the trade date. 

The Commission preliminarily 

believes that shortening these 

timeframes would not materially affect 

the costs that broker-dealers would 

likely incur to meet their Regulation 

SHO obligations and obligations under 

the Commission’s financial 

responsibility rules. Nevertheless, the 

Commission acknowledges that a 

shorter settlement cycle could affect the 

processes by which broker-dealers 

manage the likelihood of incurring these 

obligations. For example, broker-dealers 

may currently have in place inventory 

management systems that help them 

avoid failing to deliver securities by 

T+2. Broker-dealers would likely incur 

costs in order to update these systems 

to support a shorter settlement cycle. 

In cases where market participants 

will need to adjust the way in which 

they comply with other Commission 

rules, the magnitude of the costs 

associated with these adjustments is 

difficult to quantify. As noted above, 

market participants employ a wide 

variety of strategies to meet regulatory 

obligations. For example, broker-dealers 

may ensure that they have securities 

available to meet their obligations by 

using inventory management systems or 

they may choose instead to borrow 

securities. An estimate of costs is further 

complicated by the possibility that 

market participants could change their 

compliance strategies in response to a 

shorter standard settlement cycle. 

As with the T+2 transition, the 

Commission anticipates that the 

proposed transition to T+1 would again 

require changes to SRO rules and 

changes to the operations or market 

participants subject to those rules to 

achieve consistency with a T+1 

standard settlement cycle. Certain SRO 


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362The T+1 Report similarly indicates that SROs 

will likely need to update their rules to facilitate a 

transition to a T+1 standard settlement cycle. T+1 

Report, supra note 18, at 35. 363See supra Part V.C.2. 

364Reduction of these risks should result in the 

reduction of margin requirements and other risk 

management activity that requires resources that 

could be put to another use. 365See supra Part V.B.2. 

366See supra Part V.A. 

367See Madhavan et al., supra note 296. 

368All other things equal, an option with a longer 

time to maturity is more likely to be in the money 

given that the variance of the underlying security’s 

price at the exercise date is higher. 

369See supra Part V.B.2. 

370See supra Part V.C.1 for a discussion of the 

reduction in credit, market, and liquidity risks to 

which NSCC would be subject as a result of a 

shortening of the settlement cycle and the 

subsequent reduction financial resources dedicated 

to mitigating those risks. 

rules reference existing Rule 15c6–1 or 

currently define ‘‘regular way’’ 

settlement as occurring on T+2 and, as 

such, may need to be amended in 

connection with shortening the standard 

settlement cycle to T+1. Certain 

timeframes or deadlines in SRO rules 

also may refer to the settlement date, 

either expressly or indirectly. In such 

cases, the SROs may need to amend 

these rules in connection with 

shortening the settlement cycle to 

T+1.362

The Commission invites commenters 

to provide quantitative and qualitative 

information about the impact of the 

proposed amendment to Rule 15c6–1(a) 

on the costs associated with compliance 

with other Commission rules. 

4. Effect on Efficiency, Competition, and 

Capital Formation 

Market participants may incur initial 

costs for the investments necessary to 

comply with a shorter standard 

settlement cycle.363 However, these 

costs would likely differ across market 

participants and these differences may 

exacerbate coordination problems. First, 

per-transaction operational costs 

clearing members incur in connection 

with the clearing services they provide 

may be higher for members that clear 

fewer transactions than such costs are 

for members that clear a higher volume 

of transactions. Thus, the extent to 

which many of the upgrades necessary 

for a T+1 standard settlement cycle are 

optimal for a member to adopt 

unilaterally may depend, in part, on the 

transaction volume cleared by such 

member. For example, certain upgrades 

necessary for a T+1 standard settlement 

cycle may result in economies of scale, 

where large clearing members are able 

to comply with the proposed 

amendment to Rule 15c6–1(a) at a lower 

per-transaction cost than smaller 

members. As a result, larger members 

might take a short time to recover their 

initial costs for upgrades; smaller 

members with lower transaction 

volumes might take longer to recover 

their initial cost outlays and might be 

more reluctant to make the upgrades in 

the absence of the proposed 

amendment. These differences in cost 

per transaction may be mitigated 

through the use of third-party service 

providers. 

In addition, the Commission 

acknowledges that the upgrades 

necessary to implement a shorter 

standard settlement cycle may produce 

indirect economic effects. We analyze 

some of these indirect effects, such as 

the impact on competition and thirdparty service providers, in the following 

section. 

A shorter settlement cycle might 

improve the efficiency of the clearance 

and settlement process through several 

channels. First, the Commission 

preliminarily believes that the primary 

effect that a shorter settlement cycle 

would have on the efficiency of the 

settlement process would be a reduction 

in the credit, market, and liquidity risks 

that broker-dealers, CCPs, and other 

market participants are subject to during 

the standard settlement cycle.364 A 

shorter standard settlement cycle will 

generally reduce the volume of 

unsettled transactions that could 

potentially pose settlement risk to 

counterparties. Shortening the period 

between trade execution and settlement 

would enable trades to be settled with 

less aggregate risk to counterparties or 

the CCP. A shorter standard settlement 

cycle may also decrease liquidity risk by 

enabling market participants to access 

the proceeds of their transactions 

sooner, which may reduce the cost 

market participants incur to handle 

idiosyncratic liquidity shocks (i.e., 

liquidity shocks that are uncorrelated 

with the market). That is, because the 

time interval between a purchase/sale of 

securities and payment is reduced by 

one business day, market participants 

with immediate payment obligations 

that they could cover by selling 

securities would be required to obtain 

short-term funding for one less day.365

As a result of reduced cost associated 

with covering their liquidity needs, 

market participants may, under 

particular circumstances, be able to shift 

assets that would otherwise be held as 

liquid collateral towards more 

productive uses, improving allocative 

efficiency.366

Second, a shorter standard settlement 

cycle may increase price efficiency 

through its effect on credit risk 

exposures between financial 

intermediaries and their customers. In 

particular, a prior study noted that 

certain intermediaries that transact on 

behalf of investors, such as brokerdealers, may be exposed to the risk that 

their customers default on payment 

obligations when the price of purchased 

securities declines during the settlement 

cycle.367 As a result of the option to 

default on payment obligations, 

customers’ payoffs from securities 

purchases resemble European call 

options and, from a theoretical 

standpoint, can be valued as such. 

Notably, the value of European call 

options increases in the time to 

expiration 368 suggesting that the value 

of call options held by customers who 

purchase securities is increasing in the 

length of the settlement cycle. In order 

to compensate itself for the call option 

that it writes, an intermediary may 

include the cost of these call options as 

part of its transaction fee and this cost 

may become a component of bid-ask 

spreads for securities transactions. By 

reducing the value of customers’ option 

to default by reducing the option’s time 

to maturity, a shorter standard 

settlement cycle may reduce transaction 

costs in U.S. securities markets. In 

addition, to the extent that any benefit 

buyers receive from deferring payment 

during the settlement cycle is 

incorporated in securities returns,369 the 

proposed amendment to Rule 15c6–1(a) 

may reduce the extent to which such 

returns deviate from returns consistent 

with changes in fundamentals. 

As discussed in more detail above, the 

Commission preliminarily believes that 

the proposed amendment to Rule 15c6– 

1(a) would likely require market 

participants to incur costs related to 

infrastructure upgrades and would 

likely yield benefits to market 

participants, largely in the form of 

reduced financial risks related to 

settlement. As a result, the Commission 

preliminarily believes that the proposed 

amendment to Rule 15c6–1(a) could 

affect competition in a number of 

different, and potentially offsetting, 

ways. 

The prospective reduction in financial 

risks related to shortening the standard 

settlement cycle may represent a 

reduction in barriers to entry for certain 

market participants.370 Reductions in 

the financial resources required to cover 

an NSCC member’s clearing fund 

requirements that result from a shorter 

standard settlement cycle could 

encourage financial firms that currently 

clear transactions through NSCC 

clearing members to become clearing 

members themselves. 


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371See supra Part V.B.2. 

372See supra Part V.A for more discussion 

regarding capital formation and efficiency. 

373See SIA Business Case Report, supra note 21; 

see also ISG White Paper, supra note 26; BCG 

Study, supra note 22. The SIA has since merged 

with other groups to form SIFMA. 

374The BCG Study generally refers to 

‘‘institutional broker-dealers,’’ ‘‘retail brokerdealers,’’ ‘‘buy side’’ firms, and ‘‘custodian banks,’’ 

without defining these particular groups. The 

Commission uses these terms when referring to 

estimates provided by the BCG Study but notes that 

its own definitions of various affected parties may 

differ from those in the BCG Study. 

375See BCG Study, supra note 22, at 9–10. 

376 Id. at 30–31. 

377See id. at 41. 

Their entry into the market could 

promote competition among NSCC 

clearing members. Furthermore, if a 

reduction in settlement risks results in 

lower transaction costs for the reasons 

discussed above, market participants 

that were, on the margin, discouraged 

from supplying liquidity to securities 

markets due to these costs could choose 

to enter the market for liquidity 

suppliers, increasing competition. 

At the same time, the Commission 

acknowledges that the process 

improvements required to enable a 

shorter standard settlement cycle could 

adversely affect competition. Among 

clearing members, where such process 

improvements might be necessary to 

comply with the shorter standard 

settlement cycle required under the 

proposed amendment to Rule 15c6–1(a), 

the cost associated with compliance 

might increase barriers to entry, because 

new firms would incur higher fixed 

costs associated with a shorter standard 

settlement cycle if they wish to enter the 

market. Clearing members might choose 

to comply by upgrading their systems 

and processes or may choose instead to 

exit the market for clearing services. The 

exit of clearing members could have 

negative consequences for competition 

among clearing members. Clearing 

activity tends to be concentrated among 

larger broker-dealers.371 Clearing 

member exit could result in further 

concentration and additional market 

power for those clearing members that 

remain. 

Alternatively, some current clearing 

members may choose to comply in part 

by outsourcing their operational needs 

to third-party service providers. Use of 

third-party service providers may 

represent a reasonable response to the 

operational costs associated with the 

proposed amendment to Rule 15c6–1(a). 

To the extent that third-party service 

providers are able to spread the fixed 

costs of compliance across a larger 

volume of transactions than their 

clients, the Commission preliminarily 

believes that the use of third-party 

service providers might impose a 

smaller compliance cost on clearing 

members than if these firms directly 

bore the costs of compliance. The 

Commission preliminarily believes that 

this impact may stretch beyond just 

clearing members. The use of thirdparty service providers may mitigate the 

extent to which the proposed 

amendment to Rule 15c6–1(a) raises 

barriers to entry for broker-dealers. 

Because these barriers to entry may have 

adverse effects on competition between 

clearing members, we preliminarily 

believe that the use of third-party 

service providers may mitigate the 

adverse effects of the proposed 

amendment to Rule 15c6–1(a) on 

competition between broker-dealers. 

Existing market power may also affect 

the distribution of competitive impacts 

stemming from the proposed 

amendment to Rule 15c6–1(a) across 

different types of market participants. 

While, as noted above, reductions in the 

credit, market, and liquidity risks that 

broker-dealers, CCPs, and other market 

participants are subject to during the 

standard settlement cycle could 

promote competition among clearing 

members and liquidity suppliers, these 

groups may benefit to differing degrees, 

depending on the extent to which they 

are able to capture the benefits of a 

shortened standard settlement cycle. 

Finally, a shorter standard settlement 

cycle might also improve the capital 

efficiency of the clearance and 

settlement process, which would 

promote capital formation in U.S. 

securities markets and in the financial 

system generally.372 A shorter standard 

settlement cycle would reduce the 

amount of time that collateral must be 

held for a given trade, thus freeing the 

collateral to be used elsewhere earlier. 

For a given quantity of trading activity, 

collateral would also be committed to 

clearing fund deposits for a shorter 

period of time. The greater collateral 

efficiency promoted by a shorter 

settlement cycle might also indirectly 

promote capital formation for market 

participants in the financial system in 

general. Specifically, the improved 

capital efficiency that would result from 

a shorter standard settlement cycle 

would enable a given amount of 

collateral to support a larger amount of 

financial activity. 

5. Quantification of Direct and Indirect 

Effects of a T+1 Settlement Cycle 

In previous years, several industry 

groups have released estimates for 

compliance costs associated with a 

shorter standard settlement cycle, 

including the SIA, the ISC, and BCG.373

Although all of these studies examined 

prior shortenings of the settlement cycle 

including from T+5 to T+3 and from 

T+3 to T+2, in the absence of a current 

study examining shortening from the 

current T+2 to T+1 they serve as a 

useful rough initial estimate of the costs 

involved in a settlement cycle 

shortening. The most recent of these, the 

BCG Study performed a cost-benefit 

analysis of a T+2 standard settlement 

cycle. Below is a summary of the cost 

estimates in the BCG Study and in the 

following subsections, an evaluation of 

these estimates as part of the discussion 

of the potential direct and indirect 

compliance costs related to the 

proposed amendment to Rule 15c6–1(a). 

In addition, the Commission encourages 

commenters to provide additional 

information to help quantify the 

economic effects that we are currently 

unable to quantify due to data 

limitations. 

(a) Industry Estimates of Costs and 

Benefits 

The BCG Study concluded that the 

transition to a T+2 settlement cycle 

would cost approximately $550 million 

in incremental initial investments 

across industry constituent groups,374

which would result in annual operating 

savings of $170 million and $25 million 

in annual return on reinvested capital 

from clearing fund reductions.375

The BCG Study also estimated that 

the average level of required 

investments per firm could range from 

$1 to 5 million, with large institutional 

broker-dealers incurring the largest 

amount of investments on a per-firm 

basis, and buy side firms at the lower 

end of the spectrum.376 The investment 

costs for ‘‘other’’ entities, including 

DTCC, DTCC ITP Matching (US) LLC (f/ 

k/a Omgeo Matching (US) LLC), service 

bureaus, RICs and non-self-clearing 

broker-dealers totaled $70 million for 

the entire group. Within this $70 

million, DTCC and Omgeo were 

estimated to have a compliance 

investment cost of $10 million each. 

The study’s authors estimated that 

institutional broker-dealers would have 

operational cost savings of 

approximately 5%, retail broker-dealers 

of 2% to 4%, buy-side firms of 2% and 

custodial banks of 10% to 15% for an 

industry total operational cost savings of 

approximately $170MM per year.377

The BCG Study also estimated the 

annual clearing fund reductions 

resulting from reductions in clearing 

firms’ clearing funds requirements to be 


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378See supra note 334 for a discussion of the 

impact of increases in daily trading volume since 

the time of the BCG study on this estimate. 379See supra Part V.A. While market participants 

may have already made investments consistent with 

implementing a shorter settlement cycle, the fact 

that these investments have not resulted in a shorter 

settlement cycle is consistent with the existence of 

coordination problems among market participants. 380See BCG Study, supra note 22, at 15. 

381See id. 

382See T+2 Playbook, supra note 27, at 11. 

383See BCG Study, supra note 22, at 23. 

384The BCG Study, as it is based on survey 

responses from market participants, does reflect the 

heterogeneity of compliance costs for market 

participants. 

385For example, FMUs that play a critical role in 

the clearance and settlement infrastructure would 

require more testing associated with a T+1 standard 

settlement cycle than institutional investors. 

386To monetize the internal costs, the 

Commission staff used data from SIFMA 

publications, modified by Commission staff to 

account for an 1800 hour work-year and multiplied 

by 5.35 (professionals) or 2.93 (office) to account for 

bonuses, firm size, employee benefits and overhead. 

See SIFMA, Management and Professional Earnings 

in the Security Industry—2013 (Oct. 7, 2013), 

https://www.sifma.org/resources/research/ 

management-and-professional-earnings-in-thesecurities-industry-2013/; SIFMA, Office Salaries in 

the Securities Industry—2013 (Oct. 7, 2013), 

https://www.sifma.org/resources/research/officesalaries-in-the-securities-industry/. These figures 

have been adjusted for inflation using data 

published by the Bureau of Labor Statistics. 

$25 million per year.378 The study 

estimated this by considering the 

reduction in clearing fund requirements 

and multiplied it by the average Federal 

Funds target rate for the 10-year period 

up until 2008 (3.5%). The BCG Study 

also estimated the value of the risk 

reduction in buy side exposure to the 

sell side. The implied savings were 

estimated to be $200 million per year, 

but these values were not included in 

the overall cost-benefit calculations. 

Several factors limit the usefulness of 

the BCG Study’s estimates of potential 

costs and benefits of the proposed 

amendment to Rule 15c6–1(a). First, a 

further shortening of the settlement 

cycle to T+1 may require investments in 

new technology and processes that were 

not necessary under the previous 

shortening to T+2. Second, 

technological improvements, such as 

the increased use of computers and 

automation in post-trade processes, that 

have been made since 2012, when the 

report was first published, may have 

reduced the cost of the upgrades 

necessary to comply with a shorter 

settlement cycle. This may, in turn, 

reduce the costs associated with the 

proposed amendment,379 as a larger 

portion of market participants may have 

already adopted many processes that 

would reduce the cost of a transition to 

a shorter settlement cycle. In addition, 

the BCG Study considered as a part of 

its cost estimates operational cost 

savings as a result of improvements to 

operational efficiency. 

Lastly, the BCG Study was premised 

on survey responses by a subset of 

market participants that may be affected 

by the rule. Surveys were sent to 270 

market participants and 70 responses 

were received, including 20 

institutional broker-dealers, prime 

brokers and correspondent clearers; 12 

retail broker-dealers; 17 buy side firms; 

14 RIAs; and seven custodian banks. 

Given the low response rate, as well as 

the uncertainty regarding the sample of 

market participants that was asked to 

complete the survey, the Commission 

cannot conclude that the cost estimates 

in the BCG Study are representative of 

the costs of all market participants.380

(b) Estimates of Costs 

The proposed amendment to Rule 

15c6–1(a) would generate direct and 

indirect costs for market participants, 

who may need to modify and/or replace 

multiple systems and processes to 

comply with a T+1 standard settlement 

cycle. As noted above, the T+2 Playbook 

included a timeline with milestones and 

dependencies necessary for a transition 

to a T+2 settlement cycle, as well as 

activities that market participants 

should consider in preparation for the 

transition and the Commission 

preliminarily believes that this provides 

an initial guide to those that would be 

necessary for a transition to T+1. The 

Commission preliminarily believes that 

the majority of activities for migration to 

a T+1 settlement cycle would stem from 

behavior modification of market 

participants and systems testing, and 

thus the majority of the costs of 

migration would be from labor.381 These 

modifications would include a 

compression of the settlement timeline, 

as well as an increase in the fees that 

brokers may impose on their customers 

for trade failures. Although the T+2 

Playbook did not include any direct 

estimates of the compliance costs for a 

T+2 settlement cycle, the Commission 

utilizes the timeline in the T+2 

Playbook for specific actions necessary 

to migrate to a T+2 settlement cycle to 

directly estimate the inputs needed for 

migration, and form preliminary 

compliance cost estimates for the 

shortening to T+2 and uses these as an 

estimate for the shortening to T+1. 

In addition, the T+2 Playbook, the ISC 

White Paper, and the BCG Study 

identified several categories of actions 

that market participants might need to 

take to comply with a T+2 settlement 

cycle and likely also with a T+1 

settlement cycle—processing, asset 

servicing, and documentation.382 While 

the following cost estimates for these 

remedial activities span industry-wide 

requirements for a migration to a T+1 

settlement cycle, the Commission does 

not anticipate each market participant 

directly undertaking all of these 

activities for several reasons. First, some 

market participants work with thirdparty service providers to facilitate 

certain functions that may be impacted 

by a shorter standard settlement cycle, 

such as trade processing and asset 

servicing, and thus may only bear the 

costs of the requirements through fees 

paid to those service providers. Second, 

certain costs might only fall on specific 

categories of entities. For example, the 

costs of updating the CNS and ID Net 

system would only directly fall on 

NSCC, DTC, and members/participants 

of those clearing agencies. Finally, some 

market participants may already have 

the processes and systems in place to 

accommodate a T+1 standard settlement 

cycle or would be able to adjust to a T+1 

settlement cycle without incurring 

significant costs. For example, some 

market participants may already have 

the systems and processes in place to 

meet the requirements for same-day 

trade affirmation and matching 

consistent with the requirements in 

proposed Rule 15c6–2.383 These market 

participants may thus bear a 

significantly lower cost to update their 

trade affirmation systems/processes to 

settle on a T+1 standard settlement 

cycle.384

The following section examines 

several categories of market participants 

and estimate the compliance costs for 

each category. The Commission’s 

estimate of the number and type of 

personnel that may be required is based 

on the scope of activities for a given 

category of market participant necessary 

for the market participant to migrate to 

a T+1 settlement cycle, the market 

participant’s role within the clearance 

and settlement process, and the amount 

of testing required to minimize undue 

disruptions.385 Hourly salaries for 

personnel are from SIFMA’s 

Management and Professional Earnings 

in the Securities Industry 2013.386

These estimates use the timeline from 

the T+2 Playbook to determine the 

length of time personnel would work on 

the activities necessary to support a T+1 

settlement cycle. The timeline provides 

an indirect method to estimate the 

inputs necessary to migrate to a T+1 

settlement cycle, rather than relying 

directly on survey response estimates. 

The Commission acknowledges many 

entities are already undertaking 

activities to support a migration to a 

T+1 settlement cycle in anticipation of 


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387See T+2 Playbook, supra note 27, at 11. 388The estimate is based on the T+2 Playbook 

timeline, which estimates regulation-dependent 

implementation activity, industry testing, and 

migration lasting five quarters. The Commission 

assumes 10 operations specialists (at $149 per 

hour), 10 programmers (at $295 per hour), and 1 

senior operations manager (at $397/hour), working 

40 hours per week. (10 × $149 + 10 × $295 + 1 × 

$397) × 5 × 13 × 40 = $12,575,000. 

389The estimate is based on the T+2 Playbook 

timeline, which estimates regulation-dependent 

implementation activity for trade systems, 

matching, affirmation, testing, and post-migration 

testing lasting five quarters. The Commission 

assumes 10 operations specialists (at $149 per 

hour), 10 programmers (at $295 per hour), and 1 

senior operations manager (at $397/hour), working 

40 hours per week. (10 × $149 + 10 × $295 + 1 × 

$397) × 5 × 13 × 40 = $12,575,000. 

390The estimate is based on the T+2 Playbook 

timeline, which estimates regulation-dependent 

implementation activity for trade systems, reference 

data, and testing activity to last four quarters. We 

assume 2 operations specialists (at $149 per hour), 

2 programmers (at $295 per hour), and 1 senior 

operations manager (at $397 per hour), working 40 

hours per week. (2 × $149 + 2 × $195 + 1 × $397) 

× 4 × 13 × 40 = $2,673,400. 

391The estimate is based on the T+2 Playbook 

timeline, which estimates regulation-dependent 

implementation activity for trade systems, reference 

data, documentation, asset servicing, and testing to 

last four quarters. We assume 5 operations 

specialists (at $149 per hour), 5 programmers (at 

$295 per hour), and 1 senior operations manager (at 

$397 per hour), working 40 hours per week. (5 × 

$149 + 5 × $256 + 1 × $345) × 4 × 13 × 40 = 

$4,721,600. 

392The estimate is based on the T+2 Playbook 

timeline, which estimates regulation-dependent 

implementation activity for trade systems, reference 

data, documentation, asset servicing, customer 

education and testing to last five quarters. We 

assume 5 operations specialists (at $149 per hour), 

5 programmers (at $295 per hour), 5 trainers (at 

$239 per hour) and 1 senior operations manager (at 

$397 per hour), working 40 hours per week. (5 × 

$149 + 5 × $295 + 5 × $239 + 1 × $397) × 5 × 13 

× 40 = $9,914,000. 

393This estimate is based on the assumption that 

a broker-dealer chooses to educate customers using 

a 10-minute video that takes at most $3,000 per 

minute to produce. See Crowdfunding, Exchange 

Act Release No. 76324 (Oct. 30, 2015), 80 FR 71388, 

71529 & n.1683 (Nov. 16, 2015). 

394Calculated as $30,000 per broker-dealer × (156 

broker-dealers reporting as self-clearing + 1,126 

broker-dealers reporting as introducing but not selfclearing + 71 broker-dealers reporting as 

introducing and self-clearing) = $40,590,000. 

the proposed amendment. However, to 

the extent that the costs of these 

activities have already been incurred, 

the Commission considers these costs 

sunk, and they are not included in the 

analysis below. 

(1) FMUs—CCPs and CSDs 

CNS, NSCC/DTC’s ID Net service, and 

other systems would require adjustment 

to support a T+1 standard settlement 

cycle. According to the T+2 Playbook 

and the ISC White Paper, regulationdependent planning, implementation, 

testing, and migration activities 

associated with the transition to a T+2 

settlement cycle could last up to five 

quarters.387 The Commission 

preliminarily believes that these 

activities would impose a one-time 

compliance cost of $12.6 million 388 for 

DTC and NSCC each. After this initial 

compliance cost, the Commission 

preliminarily expects that both DTCC 

and NSCC would incur minimal 

ongoing costs from the transition to a 

T+1 standard settlement cycle, because 

the Commission believes that the 

majority of costs would stem from premigration activities, such as 

implementation, updates to systems and 

processes, and testing. 

(2) Matching/ETC Providers—Exempt 

Clearing Agencies 

Matching/ETC Providers may need to 

adapt their trade processing systems to 

comply with a T+1 settlement cycle. 

This may include actions such as 

updating reference data, configuring 

trade match systems, and configuring 

trade affirmation systems to affirm 

trades on T+0. Matching/ETC Providers 

would also need to conduct testing and 

assess post-migration activities. The 

Commission preliminarily estimates 

that these activities would impose a 

one-time compliance cost of up to $12.6 

million 389 for each Matching/ETC 

Provider. However, the Commission 

acknowledges that some ETC providers 

may have a higher cost burden than 

others based on the volume of 

transactions that they process. The 

Commission expects that ETC providers 

would incur minimal ongoing costs after 

the initial transition to a T+1 settlement 

cycle because the Commission 

preliminarily believes that the majority 

of the costs of migration to a T+1 

settlement cycle entail behavioral 

changes of market participants and premigration testing. 

(3) Market Participants—Investors, 

Broker-Dealers, Investment Advisers, 

and Bank Custodians 

The overall compliance costs that a 

market participant incurs would depend 

on the extent to which it is directly 

involved in functions related to 

clearance and settlement including 

trade confirmation/affirmation, asset 

servicing, and other activities. For 

example, retail investors may bear few 

(if any) direct costs in a transition to a 

T+1 standard settlement cycle, because 

their respective broker-dealer handles 

the back-office functions of each 

transaction. However, as is discussed 

below, this does not imply that retail 

investors would not face indirect costs 

from the transition, such as those passed 

through from broker-dealers or banks. 

Institutional investors may need to 

configure systems and update reference 

data, which may also include updates to 

trade funding and processing 

mechanisms, to operate in a T+1 

environment. The Commission 

preliminarily estimates that this would 

require an initial expenditure of $2.67 

million per entity.390 However, these 

costs may vary depending on the extent 

to which a particular institutional 

investor has already automated its 

processes. The Commission 

preliminarily expects institutional 

investors would incur minimal ongoing 

direct compliance costs after the initial 

transition to a T+1 standard settlement 

cycle. 

Broker-dealers that serve institutional 

investors would not only need to 

configure their trading systems and 

update reference data, but may also 

need to update trade confirmation/ 

affirmation systems, documentation, 

cashiering and asset servicing functions, 

depending on the roles they assume 

with respect to their clients. The 

Commission preliminarily estimates 

that, on average, each of these brokerdealers would incur an initial 

compliance cost of $5.44 million.391 The 

Commission preliminarily expects that 

these broker-dealers would incur 

minimal ongoing direct compliance 

costs after the initial transition to a T+1 

standard settlement cycle. 

Broker-dealers that serve retail 

customers may also need to spend 

significant resources to educate their 

clients about the shorter settlement 

cycle. The Commission preliminarily 

estimates that these broker-dealers 

would incur an initial compliance cost 

of $9.91 million each.392 However, 

unlike previously mentioned market 

participants, the Commission expects 

that broker-dealers that serve retail 

investors may face significant one-time 

compliance costs after the initial 

transition to T+1. Retail investors may 

require additional education and 

customer service, which may impose 

costs on their broker-dealers. The 

Commission preliminarily believes that 

a reasonable upper bound for the costs 

associated with this requirement is 

$30,000 per broker-dealer.393 Assuming 

all clearing and introducing brokerdealers must educate retail customers, 

the upper bound for the costs of retail 

investor education would be 

approximately $40.6 million.394

Custodian banks would need to 

update their asset servicing functions to 

comply with a shorter settlement cycle. 

The Commission preliminarily 

estimates that custodian banks would 

incur an initial compliance cost of $1.34 


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395The estimate is based on the T+2 Playbook 

timeline, which estimates regulation-dependent 

implementation activity for asset servicing and 

testing to last two quarters. We assume 2 operations 

specialists (at $149 per hour), 2 programmers (at 

$295 per hour), and 1 senior operations manager (at 

$397 per hour), working 40 hours per week. (2 × 

$149 + 2 × $295 + 1 × $397) × 2 × 13 × 40 = 

$1,336,700. 

396See infra note 424. 397See id. 

398See DTCC ITP Forum Remarks, supra note 58. 

399For purposes of the Paperwork Reduction Act, 

infra section VI, we estimated the number of small 

and mid-sized advisers based on Form ADV Items 

2.A.(2) (for mid-sized advisers) and 12 (for small 

advisers). 

400The estimate assumes that the proposed 

amendments to Rule 204–2 would result in an 

initial increase in the collection of information 

burden estimate by 2 hours for the small and 

medium size advisers that have institutional clients 

that we estimate do not currently maintain these 

records. We estimate this number of advisers to be 

approximately 50% of small and medium sized 

registered investment advisers that have 

institutional clients, or approximately 220 small 

and medium size advisers. See infra Table 1 

(Summary of burden estimates for the proposed 

amendment to Rule 204–2) note 4. The estimated 

2 hours per adviser would be an initial burden to 

update procedures and instruct personnel to retain 

these records in the advisers’ electronic 

recordkeeping systems, including any 

confirmations that they may receive in paper format 

and do not currently retain. We believe that these 

advisers already have recordkeeping systems to 

accommodate these records, which would include, 

at a minimum, spreadsheet formats and email 

retention systems. As with our estimates relating to 

the previous amendments to Advisers Act Rule 

204–2, the Commission expects that performance of 

these functions would most likely be allocated 

between compliance clerks and general clerks, with 

compliance clerks performing 17% of the function 

and general clerks performing 83% of the function. 

We assume 20 minutes of a compliance clerk (at 

$76 per hour) and 100 minutes of a general clerk 

(at $68 per hour). (1/3 × 76 + 5/3 × 68) × 220 = 

$30,507. 

401We estimate that currently registered large 

advisers that do not currently maintain electronic 

records, would be part of the estimated 1% of 

advisers that would incur 2 hours each to comply 

with the proposed amendment as described above. 

For new large advisers, we estimate that there 

would be no incremental cost associated with this 

proposed amendment, as we believe these advisers 

would implement electronic systems as part of their 

initial compliance with Rule 204–2, and that these 

electronic systems would have an ability to capture 

a date and time stamp. 

402We estimate 1% of 11,283 or 113 advisers do 

not sent allocations or affirmations electronically. 

We assume, for each adviser, 20 minutes for a 

compliance clerk (at $76 per hour) and 100 minutes 

of a general clerk (at $68 per hour). (1/3 × 76 + 5/ 

3 × 68) × 113 = $15,669. 

403We estimate 70% of 11,283 or 7,898 advisers 

affirm trades through custodians. We assume, for 

each advisor, 20 minutes for a compliance clerk (at 

$76 per hour) and 100 minutes of a general clerk 

(at $68 per hour). (1/3 × 76 + 5/3 × 68) × 7,898 = 

$1,095,189. 

404See Clearing Agency Standards, Exchange Act 

Release No. 68080 (Oct. 22, 2012), 77 FR 66219, 

66260 (Nov. 2, 2012) (‘‘Clearing Agency Standards 

Adopting Release’’); Standards for Covered Clearing 

Agencies, Exchange Act Release No. 78961 (Sept. 

28, 2016), 81 FR 70786, 70891–92 (Oct. 13, 2016) 

(‘‘CCA Standards Adopting Release’’). 

405There are currently three CMSPs and the 

Commission anticipates that one additional entity 

may seek to become a CMSP in the next three years. 

The aggregate cost was estimated as follows: 

(Assistant General Counsel at $602/hour × 8 hours 

= $4,816) + (Compliance Attorney at $334/hour × 

6 hours = $2,004) = $6,820 × 4 CMSPs equals 

$27,280. 

million,395 and expects custodian banks 

to incur minimal ongoing compliance 

costs after the initial transition because 

the Commission preliminarily believes 

that most of the costs would stem from 

pre-migration updates and testing. 

The proposed amendment to Rule 

204–2 would require investment 

advisers to maintain records of 

allocations (if any), confirmations or 

affirmations if the adviser is a party to 

a contract under that rule. Based on 

Form ADV filings as of December 2020, 

approximately 13,804 advisers 

registered with the Commission are 

required to maintain copies of certain 

books and records relating to their 

advisory business.396 The Commission 

further estimates that 2,521 registered 

advisers required to maintain copies of 

certain books and records relating to 

their advisory business would not be 

required to make and keep the proposed 

required records because they do not 

have any institutional advisory 

clients.397 Therefore, the remaining 

11,283 of these advisers would be 

subject to the related proposed 

amendment to Rule 204–2 under the 

Advisers Act, would enter a contract 

with a broker or dealer under proposed 

Rule 15c6–2 and therefore be subject to 

the related proposed recordkeeping 

amendment. 

As discussed above, based on staff 

experience, the Commission believes 

that many advisers already have 

recordkeeping processes in place to 

retain records of confirmations received, 

and allocations and affirmations sent to 

brokers or dealers. The Commission 

believes these are customary and usual 

business practices for many advisers, 

but that some small and mid-size 

advisers do not currently retain these 

records. Further, the Commission 

believes that the vast majority of these 

books and records are kept in electronic 

fashion with an ability to capture a date 

and time stamp, such as in a trade order 

management or other recordkeeping 

system, through system logs of file 

transfers, email archiving or as part of 

DTC’s Institutional Trade Processing 

services, but that some advisers 

maintain paper records (e.g., 

confirmations) and/or communicate 

allocations by telephone. In addition, as 

noted in Section III.C, above, we believe 

that up to 70% of institutional trades are 

affirmed by custodians, and therefore 

advisers may not retain or have access 

to the affirmations these custodians sent 

to brokers or dealers.398

For those advisers maintaining date 

and time stamped electronic records 

already, we estimate no incremental 

compliance costs. We estimate that the 

proposed amendments to rule 204–2 

would result in an initial one-time 

compliance cost of approximately 

$30,500 for the small and mid-size 

advisers 399 that we estimate do not 

currently maintain these records, which 

we amortize over three years for an 

estimated annual cost of approximately 

$10,167.400 In addition, we believe that 

only a small number of advisers, or 1% 

of advisers that have institutional 

clients, do not send allocations or 

affirmations electronically to brokers or 

dealers (e.g., they communicate them by 

telephone).401 We estimate that these 

advisers will incur initial one-time costs 

of approximately $16,000 updating their 

policies and procedures and training 

their personnel to send these 

communications through their existing 

electronic systems, which we amortize 

over three years for an estimated annual 

cost of approximately $5,333.402

In addition, we estimate that 70% of 

institutional trades are affirmed by 

custodians, and therefore advisers may 

not retain or have access to the 

affirmations these custodians sent to 

brokers or dealers. Because we do not 

know the number of advisers that 

correlate to these trades, we estimate for 

purposes of this collection of 

information that 70% of advisers with 

institutional clients make institutional 

trades that are affirmed by custodians. 

Therefore, we estimate that these 

advisers would incur initial one-time 

costs of approximately $1,095,000 to 

direct their institutional clients’ 

custodians to copy the adviser on any 

affirmations sent through email, or for 

the adviser to use its systems to issue 

affirmations, which we amortize over 

three years for an estimated annual cost 

of approximately $365,500.403

Proposed Rule 17Ad–27 would 

require a CMSP to establish, implement, 

maintain, and enforce written policies 

and procedures. Based on the similar 

policies and procedures requirements 

and the corresponding burden estimates 

previously made by the Commission for 

Rules 17Ad–22(d)(8) and 17Ad– 

22(e)(2),404 the Commission 

preliminarily estimates that respondent 

CMSPs would incur an aggregate onetime cost of approximately $27,000.405

The proposed rule would also require 

ongoing documentation activities with 

respect to the annual report required to 

be submitted to the Commission. Based 

on the similar reporting requirements 

and the corresponding burden estimates 


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406See CCA Standards Adopting Release, supra 

note 404, at 70899. 

407This figure was calculated as follows: 

[(Compliance Attorney at $397/hour × 24 hours = 

$9,528) + (Computer Operations Manager at $480/ 

hour × 10 hours = $4,800) = $14,328 × 4 CMSPs = 

$57,312]. In addition, we estimate that the Inline 

XBRL requirement would require respondent 

CMSPs to spend $900 each year to license and 

renew Inline XBRL compliance software and/or 

services, and incur 1 internal burden hour to apply 

and review Inline XBRL tags for the three disclosure 

requirements on the report, resulting in a total 

annual aggregate cost of $5,188 [(Compliance 

Attorney at $397/hour × 1 hour = $397) + $900 in 

external costs = $1,297 × 4 CMSPs = $5,188]. In 

addition, respondent CMSPs that do not already 

have access to EDGAR would be required to file a 

Form ID so as to obtain the access codes that are 

required to file or submit a document on EDGAR. 

We anticipate that each respondent would require 

0.15 hours to complete the Form ID, and for 

purposes of the PRA, that 100% of the burden of 

preparation for Form ID will be carried by each 

respondent internally. Because two respondent 

CMSPs already have access to EDGAR, we 

anticipate that proposed amendments would result 

in a one-time nominal increase of 0.30 burden 

hours for Form ID, which would not meaningfully 

add to, and would effectively be encompassed by, 

the existing burden estimates associated with these 

reports. 

408The estimate for the number of buy-side firms 

is based on the Commission’s 13(f) holdings 

information filers with over $1 billion in assets 

under management, as of December 31, 2020. The 

estimate for the number of broker-dealers is based 

on FINRA FOCUS Reports of firms reporting as selfclearing. See supra note 312 and accompanying 

text. The estimate for the number of custodian 

banks is based on the number of ‘‘settling banks’’ 

listed in DTC’s Member Directories, available at 

http://www.dtcc.com/client-center/dtc-directories. 

409Calculated as 156 broker-dealers (self-clearing) 

× $9,914,000 + 1,282 broker-dealers (self-clearing 

and introducing) × $30,000 + 49 custodian banks × 

$1,337,000 + 1,229 buy-side firms × $2,673,000 + 

1 Matching/ETC Providers × $12,575,000 + 2 FMUs 

× $12,575,000 + (IA costs of 30,500 + 16,000 + 

1,095,000) + (CMSP initial costs of $26,000) = $ 

4,974,556,500. 

410See BCG Study, supra note 22, at 79. 

411The lower bound of this range is calculated as 

($4.97 billion × (1¥0.29)) = $3.5 billion. 

previously made by the Commission for 

Rule 17Ad–22(e)(23),406 the 

Commission preliminarily estimates 

that the ongoing activities required by 

proposed Rule 17Ad–27 would impose 

an aggregate annual cost of this ongoing 

burden of approximately $44,000.407

(4) Indirect Costs 

In estimating these implementation 

costs, the Commission notes that market 

participants who bear the direct costs of 

the actions they undertake to comply 

with the amendment to Rule 15c6–1 

may pass these costs on to their 

customers. For example, retail and 

institutional investors might not directly 

bear the cost of all of the necessary 

upgrades for a T+1 settlement cycle, but 

might indirectly bear these costs as their 

broker-dealers might increase their fees 

to amortize the costs of updates among 

their customers. The Commission is 

unable to quantify the overall 

magnitude of the indirect costs that 

retail and institutional investors may 

bear, because such costs would depend 

on the market power of each brokerdealer, and each broker-dealer’s 

willingness to pass on the costs of 

migration to a T+1 standard settlement 

cycle to its customers. However, the 

Commission preliminarily believes that 

in situations where broker-dealers have 

little or no competition, broker-dealers 

may pass on as much as 100% of their 

initial costs to their customers. As 

discussed above, this could be as high 

as the full amount of the estimated 

$5.44 million for broker-dealers that 

serve institutional investors, and $9.91 

million for broker-dealers that serve 

retail investors. However, in situations 

where broker-dealers face heavy 

competition for customers, they may 

bear the full costs of the initial 

investment, and avoid passing on any 

portion of these costs to their customers. 

As noted in Part V.B.4, the ability of 

market participants to pass 

implementation costs on to customers 

likely depends on their relative 

bargaining power. For example, CCPs, 

like many other utilities, exhibit many 

of the characteristics of natural 

monopolies and, as a result, may have 

market power, particularly relative to 

broker-dealers who submit trades for 

clearing. This means that CCPs may be 

able to share implementation costs they 

directly face related to shortening the 

settlement cycle with broker-dealers 

through higher clearing fees. 

Conversely, to the extent that 

institutional investors have market 

power relative to broker-dealers, brokerdealers may not be in a position to 

impose indirect costs on them. 

(5) Industry-Wide Costs 

To estimate the aggregate, industrywide cost of a transition to a T+1 

standard settlement cycle, the 

Commission takes its own per-entity 

estimates and multiplies them by our 

estimate of the respective number of 

entities. The Commission preliminarily 

estimates that there are 1,229 buy-side 

firms, 156 self-clearing broker-dealers, 

and 49 custodian banks.408

Additionally, while there are three 

Matching/ETC Providers, the 

Commission believes that only one of 

these is currently providing services in 

the U.S. We estimate there are 1,282 

broker-dealers that would incur investor 

education costs. One way to establish a 

total industry initial compliance cost 

estimate would be to multiply each 

estimated per-entity cost by the 

respective number of entities and sum 

these values, which would result in an 

estimate of $4.97 billion.409 The 

Commission, however, preliminarily 

believes that this estimate is likely to 

overstate the true initial cost of 

transition to a T+1 settlement cycle for 

a number of reasons. First, our perentity estimates do not account for the 

heterogeneity in market participant size, 

which may have a significant impact on 

the costs that market participants face. 

While the BCG Study included both 

estimates of the number of entities in 

different size categories as well as 

estimates of costs that an entity in each 

size category is likely to incur, it did not 

provide sufficient underlying 

information to allow the Commission to 

estimate the relationship between 

participant size and compliance cost 

and thus we cannot produce comparable 

estimates. The Commission solicits 

comment on the extent to which market 

participants believe that the compliance 

costs for proposed Rule 15c6–1(a) 

would scale with market participant 

size. 

Second, investments by third-party 

service providers may mean that many 

of the estimated compliance costs for 

market participants are duplicated. The 

BCG Study suggests that ‘‘leverage’’ 

from service providers may yield a 

savings of $194 million, reducing 

aggregate costs by approximately 

29%.410 The Commission seeks further 

comment on the extent to which the 

efficiencies generated by the 

investments of service providers might 

reduce the compliance costs of market 

participants. Taking into account 

potential cost reductions due to 

repurposing existing systems and using 

service providers as described above, 

the Commission preliminarily believes 

that $3.5 billion represents a reasonable 

range for the total industry initial 

compliance costs.411

In addition to these initial costs, a 

transition to a shorter settlement cycle 

may also result in certain ongoing 

industry-wide costs. Though the 

Commission preliminarily believes that 

a move to a shorter settlement cycle 

would generally bring with it a reduced 

reliance on manual processing, a shorter 

settlement cycle may also exacerbate 

remaining operational risk. This is 

because a shorter settlement cycle 

would provide market participants with 

less time to resolve errors. For example, 

if there is an entry error in the trade 

match details sent by either 

counterparty for a trade, both 

counterparties would have one extra 

day to resolve the error under the 

baseline than in a T+1 environment. For 

these errors, a shorter settlement cycle 


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412See supra Part III.A.3. 413T+1 Report, supra note 18, at 33–35. 414See Prospectus Delivery; Securities 

Transaction Settlement Cycle, Exchange Act 

Release No. 34–35705 (May 11, 1995), 60 FR 26604 

(May 17, 1995) (‘‘1995 Amendments Adopting 

Release’’). 

415The exemption was limited to sales to an 

underwriter by an issuer and initial sales by the 

underwriting syndicate and selling group. Any 

secondary resales of such securities were to settle 

on a T+3 settlement cycle. T+3 Adopting Release, 

supra note 9, at 52898. 

416 Id. 

417 Id. at 32. 

418T+1 Report, supra note 18, at 33–35. 

419 Id. at 33. 

420See supra Part III.D (discussing the proposed 

rule); see also supra Part III.D.1 (discussing straightthrough processing). 

may increase the probability that the 

error ultimately results in a settlement 

fail. However, the Commission 

preliminarily believes that a large 

variety of operational errors are possible 

in the clearance and settlement process 

and some of these errors are likely to be 

infrequent, the Commission is unable to 

quantify the impact that a shorter 

settlement cycle may have on the 

ongoing industry-wide costs stemming 

from a potential increase in operational 

risk. 

D. Reasonable Alternatives 

1. Amend 15c6–1(c) to T+2 

The Commission is proposing to 

delete Rule 15c6–1(c) that establishes a 

T+4 settlement cycle for firm 

commitment offerings for securities that 

are priced after 4:30 p.m. ET, unless 

otherwise expressly agreed to by the 

parties at the time of the transaction.412

The Commission has considered 

amending Rule 15c6–1(c) to shorten the 

settlement cycle for firm commitment 

offerings to T+2. 

The T+1 Report stated that paragraph 

(c) is rarely used in the current T+2 

settlement environment.413 The 

Commission adopted paragraph (c) of 

Rule 15c6–1 in 1995, two years after 

Rule 15c6–1 was originally adopted.414

At the time, the rule included a limited 

exemption from the requirements under 

paragraph (a) of the rule for the sale for 

cash pursuant to a firm commitment 

offering registered under the Securities 

Act.415 The exemption for firm 

commitment offerings was added in 

response to public comments stating 

that new issue securities could not settle 

on T+3 because prospectuses could not 

be printed prior to the trade date (the 

date on which the securities are 

priced).416

As discussed further in Part III.E.4, 

Rule 172 has implemented an ‘‘access 

equals delivery’’ model that permits, 

with certain exceptions, final 

prospectus delivery obligations to be 

satisfied by the filing of a final 

prospectus with the Commission, rather 

than delivery of the prospectus to 

purchasers. As a result of these changes, 

broker-dealers generally do not require 

time to print and deliver prospectus—a 

point originally cited by many 

commenters in support of adopting 

paragraph (c).417

Although rarely used in the current 

T+2 settlement environment, the IWG 

expects a T+1 standard settlement cycle 

would increase reliance on paragraph 

(c).418 The T+1 Report further stated 

that the IWG recommends retaining 

paragraph (c) but amending it to 

establish a standard settlement cycle of 

T+2 for firm commitment offerings.419

The T+1 Report cites issues with respect 

to documentation and other operational 

elements of equity offerings that may 

delay settlement to T+2 in a T+1 

environment. As the Commission is not 

currently aware of any specific 

documentation associated with firm 

commitment offerings that cannot be 

completed by T+1, the Commission 

preliminarily believes that the need to 

complete possibly complex transaction 

documentation prior to settlement does 

not justify proposing a T+2 standard 

settlement cycle for equity offerings. 

In addition, establishing T+1 as the 

standard settlement cycle for these firm 

commitment offerings, and thereby 

aligning the settlement cycle with the 

standard settlement cycle for securities 

generally, would reduce exposures of 

underwriters, dealers, and investors to 

credit and market risk, and better ensure 

that the primary issuance of securities is 

available to settle secondary market 

trading in such securities. The 

Commission believes that harmonizing 

the settlement cycle for such firm 

commitment offerings with secondary 

market trading, to the greatest extent 

possible, limits the potential for 

operational risk. In addition, if 

paragraph (c) is removed as proposed, 

paragraph (d) would continue to 

provide underwriters and the parties to 

a transaction the ability to agree, in 

advance of a particular transaction, to a 

settlement cycle other than the standard 

set forth in Rule 15c6–1(a). 

Therefore, in the Commission’s view, 

deleting paragraph (c) while retaining 

paragraph (d) provides sufficient 

flexibility for market participants to 

manage the potential need for longer 

than T+1 settlement on certain firm 

commitment offerings priced after 4:30 

p.m. that may include ‘‘complex’’ 

documentation because paragraph (d) 

would continue to permit the 

underwriters and the parties to a 

transaction to agree, in advance of 

entering the transaction, whether T+1 

settlement or some other settlement 

timeframe is appropriate for the 

transaction. In addition, the 

Commission preliminarily believes that 

having the underwriters and the parties 

to the transaction agree in advance of 

entering the transaction whether to 

deviate from the standard settlement 

cycle established in paragraph (a) would 

promote transparency among the 

parties, in advance of entering the 

transaction, as to the length of the time 

that it takes to complete complex 

documentation with respect to the 

transaction. 

2. Propose 17Ad–27 To Require Certain 

Outcomes 

The Commission is proposing Rule 

17Ad–27 to require a CMSP establish, 

implement, maintain and enforce 

policies and procedures to facilitate 

straight-through processing for 

transactions involving broker-dealers 

and their customers.420 Proposed Rule 

17Ad–27 also would require a CMSP to 

submit every twelve months to the 

Commission a report that describes the 

following: (i) The CMSP’s current 

policies and procedures for facilitating 

straight-through processing; (ii) its 

progress in facilitating straight-through 

processing during the twelve month 

period covered by the report; and (iii) 

the steps the CMSP intends to take to 

facilitate and promote straight-through 

processing during the twelve month 

period that follows the period covered 

by the report. 

The Commission has taken a ‘‘policies 

and procedures’’ approach in 

developing the proposed rule because it 

preliminarily believes such an approach 

will remain effective over time as 

CMSPs consider and offer new 

technologies and operations to improve 

the settlement of institutional trades. 

The Commission also believes that 

improving the CMSPs’ systems to 

facilitate straight-through processing 

can help market participants consider 

additional ways to make their own 

systems more efficient. In addition, a 

‘‘policies and procedures’’ approach can 

help ensure that a CMSP considers in a 

holistic fashion how the obligations it 

applies to its users will advance the 

implementation of methodologies, 

operational capabilities, systems, or 

services that support straight-through 

processing. 

The Commission has considered as an 

alternative to the policies and 

procedures approach in proposed Rule 

17Ad–27, proposing a rule to require 

CMSPs to achieve certain outcomes that 


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421See Part II.B.2 (further discussing 

internalization by broker-dealers). 

422See 44 U.S.C. 3501 et seq. 

423See Section 210(b) of the Advisers Act, 15 

U.S.C. 80b–10(b). 

would facilitate straight-through 

processing. For example, the 

Commission could propose to require 

that a CMSP do the following: (i) Enable 

the users of its service to complete the 

matching, confirmation, or affirmation 

of the securities transaction as soon as 

technologically and operationally 

practicable and no later than the end of 

the day on which the transaction was 

effected by the parties to the transaction; 

or (ii) forward or otherwise submit the 

transaction for settlement as soon as 

technologically and operationally 

practicable, as if using fully automated 

systems. 

The Commission believes that these 

requirements would achieve certain 

discrete objectives with respect to 

straight-through processing and would 

promote prompt and accurate clearance 

and settlement. The Commission 

believes, however, that the proposed 

approach requires policies and 

procedures that include a holistic 

review and framework for considering 

how systems and processes facilitate 

straight-through processing and that can 

adapt over time to changes in 

technology and operations, both among 

and beyond the CMSP’s systems. 

E. Request for Comment 

The Commission solicits comment on 

the potential economic impact of the 

proposed amendment to Rule 15c6–1(a), 

the proposed deletion of Rule 15c6–1(c), 

proposed new Rule 15c6–2, the 

proposed amendment to Rule 204–2, 

and proposed new Rule 17Ad–27. In 

addition, the Commission solicits 

comment on related issues that may 

inform the Commission’s views 

regarding the economic impact of the 

proposed amendment to Rule 15c6–1(a), 

the proposed deletion of Rule 15c6–1(c), 

proposed new Rule 15c6–2, the 

proposed amendment to Rule 204–2, 

and proposed new Rule 17Ad–27 as 

well as alternatives to the proposed 

amendments, deletion, and new rules. 

The Commission in particular seeks 

comment on the following: 

144. The Commission invites 

commenters to provide additional data 

on the time it takes to complete each 

step within the current clearance and 

settlement process. What are current 

constraints or impediments for each 

step within the clearance and settlement 

process that would limit the ability to 

shorten the settlement cycle from T+2 to 

T+1? Do these constraints or 

impediments vary by market participant 

type? 

145. The Commission invites 

commenters to provide additional data 

on the expected collateral efficiency 

gains from a T+1 standard settlement 

cycle. How would clearing fund 

deposits change as a result of the 

proposed amendment? To what extent 

does this change fully represent the 

change to the level of risk associated 

with the settlement cycle for securities 

transactions? 

146. The Commission invites 

commenters to discuss the impact of a 

T+1 settlement cycle on broker-dealers 

and their customers, including 

custodians who may hold securities on 

behalf of said customers. What types of 

adaptations would be necessary to 

comply with a T+1 settlement cycle, 

and what are their relative costs and 

benefits? 

147. The Commission invites 

commenters to provide data regarding 

the extent to which a broker-dealer 

engages in ‘‘internalization’’ of a 

transaction on behalf of a customer. 

How prevalent are internalization 

practices? How does the volume of 

internalization compare to the volume 

of transactions that are submitted for 

clearing? 421

148. The Commission invites 

commenters to discuss the potential 

impact of a T+1 standard settlement 

cycle with respect to cross-border and 

cross-asset class transactions. Would a 

T+1 standard settlement cycle make any 

cross-border or cross-asset transactions 

more or less costly? 

149. The Commission invites 

commenters to discuss the anticipated 

market changes, if any, if the proposed 

amendment to Rule 15c6–1(a) were not 

adopted. Which activities necessary for 

compliance with a T+1 standard 

settlement cycle would occur in the 

absence of the proposed rule 

amendment and how quickly would 

they occur? 

150. In addition to the prospective 

impact on costs/burdens, the 

Commission solicits comments related 

to the credit, market, liquidity, legal, 

and operational risks (increase or 

decrease) associated with shortening the 

standard settlement cycle to T+1, and in 

particular, quantification of such risks. 

151. Are there types of customers 

other than institutional customers that 

would be affected by proposed Rule 

15c6–2? If so, please describe what 

types of customers. Would the rules 

impose an unanticipated burden on 

these customers? Please explain. 

152. What are the benefits and costs 

of requiring broker dealers to enter into 

written agreements with customers 

engaging in the trade date allocation, 

confirmation and affirmation process 

where such agreements require the 

process to be completed by the end of 

the day on trade date? 

153. What are the relative burdens of 

proposed Rule 15c6–2 on the different 

market participants involved in the 

allocation, confirmation, and 

affirmation process, particularly smaller 

market participants? 

VI. Paperwork Reduction Act 

Two of the rule proposals, proposed 

Rule 17Ad–27 and the proposed 

amendment to Rule 204–2(a), contain 

‘‘collection of information’’ 

requirements within the meaning of the 

Paperwork Reduction Act of 1995 

(‘‘PRA’’).422 The Commission is 

submitting the proposed collections of 

information to the Office of 

Management and Budget (‘‘OMB’’) for 

review in accordance with the PRA. For 

the proposed amendment to Rule 204– 

2(a), the title of the information 

collection is ‘‘Rule 204–2 under the 

Investment Advisers Act of 1940’’ (OMB 

control number 3235–0278). For 

proposed Rule 17Ad–27, the title of the 

information collection is ‘‘Clearing 

Agency Standards for Operation and 

Governance’’ (OMB Control No. 3235– 

0695). An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless it displays a currently valid OMB 

control number. 

A. Proposed Amendment to Rule 204–2 

Under Section 204 of the Advisers 

Act, investment advisers registered or 

required to register with the 

Commission under Section 203 of the 

Advisers Act must make and keep for 

prescribed periods such records (as 

defined in Section 3(a)(37) of the 

Exchange Act), furnish copies thereof, 

and make and disseminate such reports 

as the Commission, by rule, may 

prescribe as necessary or appropriate in 

the public interest or for the protection 

of investors. Rule 204–2 sets forth the 

requirements for maintaining and 

preserving specified books and records. 

This collection of information is found 

at 17 CFR 275. 204–2 and is mandatory. 

The Commission staff uses the 

collection of information in its 

regulatory and examination program. 

Responses to the requirements of the 

proposed amendment to Rule 204–2 that 

are provided to the Commission in the 

context of its regulatory and 

examination program would be kept 

confidential subject to the provisions of 

applicable law.423


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424Based on data from Form ADV as of December, 

2020. 

425Based on data from Form ADV as of December, 

2020, this figure represents registered investment 

advisers that: (i) Report no clients that are registered 

investment companies in response to Item 5.D, (ii) 

do not report any institutional separately managed 

accounts in Item 5.D., or separately managed 

account exposures in Section 5.K.(1) of Schedule D, 

and (iii) do not advise any reported hedge funds as 

per Section 7.B.(1) of Schedule D. 

426See supra Section III.C. 

427See DTCC ITP Forum Remarks, supra note 58. 

The proposed amendment to Rule 

204–2 would require advisers to 

maintain records of certain documents 

described in proposed Rule 15c6–2 if 

the adviser is a party to a contract under 

that rule. Rule 15c6–2 specifically 

identifies ‘‘allocations, confirmations or 

affirmations’’ as documents that must be 

completed no later than the end of the 

day on trade date. The respondents to 

this collection of information are 

approximately 13,804 advisers 

registered with the Commission.424 The 

Commission further estimates that 2,521 

of these registered advisers would not 

be required to make and keep the 

proposed required records because they 

do not have any institutional advisory 

clients.425 Therefore, the remaining 

11,283 of these advisers, or 81.74% of 

the total registered advisers that are 

subject to Rule 204–2, would enter a 

contract with a broker or dealer under 

proposed Rule 15c6–2 and therefore be 

subject to the related proposed 

recordkeeping amendment. 

As discussed above, based on staff 

experience, the Commission believes 

that many advisers already have 

recordkeeping processes in place to 

retain records of confirmations received, 

and allocations and affirmations sent to 

brokers or dealers.426 The Commission 

believes that while these are customary 

and usual business practices for many 

advisers, some small and mid-size 

advisers do not currently retain these 

records. Further, the Commission 

believes that the vast majority of these 

books and records are kept in electronic 

fashion in a trade order management or 

other recordkeeping system, through 

system logs of file transfers, email 

archiving or as part of DTC’s 

Institutional Trade Processing services, 

but that some advisers maintain paper 

records (e.g., confirmations) and/or 

communicate allocations by telephone. 

In addition, as noted in Section III.C, 

above, we believe that up to 70% of 

institutional trades are affirmed by 

custodians, and therefore advisers may 

not retain or have access to the 

affirmations these custodians sent to 

brokers or dealers.427 Also as noted 

above, based on staff experience, the 

Commission believes that many advisers 

send allocations and affirmations 

electronically to brokers or dealers, and 

therefore these records are already date 

and time stamped in many instances. 

Nevertheless, the proposed amendments 

would explicitly add a new requirement 

to date and time stamp allocations and 

affirmations (but not confirmations), 

and thus increase this collection of 

information burden. The Commission 

estimates that the associated increase in 

burden would be included in our 

estimate described in the chart below 

for advisers that we believe do not 

electronically send allocations and 

affirmations to their brokers or dealers. 

We describe the estimated burdens 

associated with the proposed 

recordkeeping amendment below. These 

estimated changes from the currently 

approved burden are due to the 

estimated increase in the internal hour 

and internal time cost burden that 

would be due to the proposed 

amendment, and the increase in the 

number of registered investment 

advisers (an increase of 80 advisers). 

TABLE 1—SUMMARY OF BURDEN ESTIMATES FOR THE PROPOSED AMENDMENT TO RULE 204–2 

Advisers Initial internal 

hour burden Annual internal hour burden 1 Wage rate 2 Internal time cost per year 

Annual 

external cost 

burden 3

220 small and mid-size advisers 

that have institutional clients, 

that we believe do not currently maintain the proposed 

records 4.

2 hours per adviser 5.

2 hours, amortized over a 3 year 

period, for an annual ongoing 

internal burden of 0.667 hours 

per year (220 advisers × 0.667 

hours each = 146.74 aggregate annual hours).

$69.36 per hour ..... 0.667 hour × $69.36 per hour = 

$43.60 per adviser per year. 

$69.36 × 146.74 aggregate 

hours = $10,159.16 aggregate 

cost per year.

$0 

113 advisers that have institutional clients that staff estimates do not send allocations 

or affirmations electronically to 

brokers or dealers (e.g., they 

communicate them by telephone) 6.

2 hours per adviser 7.

2 hours, amortized over a 3 year 

period, for an annual ongoing 

internal burden of 0.667 hours 

per year (113 advisers × 0.667 

hours each = 75.37 aggregate 

annual hours).

$69.36 per hour ..... 0.667 hour × $69.36 per hour = 

$43.60 per adviser per year. 

$69.36 per hour × 75.37 aggregate hours = $5,227.67 aggregate cost per year.

0 

7,898 advisers with institutional 

clients that the staff estimates 

make institutional trades that 

are affirmed by custodians, 

and therefore do not maintain 

the proposed affirmations 8.

2 hours per adviser 9.

2 hours, amortized over a 3 year 

period, for an annual ongoing 

internal burden of 0.667 hours 

per year (7,898 advisers × 

0.667 hours each = 5,267.97 

aggregate hours).

$69.36 per hour ..... 0.667 hour × $69.36 per hour = 

$43.60 per adviser per year. 

$69.36 per hour × 5,267.97 

aggregate hours = 

$365,386.40 Aggregate cost 

per year.

0 

Total estimated burden per adviser per year resulting 

from the proposed amendment.

5,490.08 aggregate hours per 

year,10 or 0.4 blended hours 

per year per adviser 11.

$380,791.95 per year (5,490.08 aggregate hours per 

year × $69.36 per hour) 

0 

Currently approved aggregate burden ............................ 2,764,563 aggregate hours per 

year.

$175,980,426 0 

Estimated revised aggregate burden .............................. 2,786,199 hours 12 ...................... $193,250,787.60 13 0 

Notes: 

1We believe that the estimated internal hour burdens associated with the proposed amendment would be one-time initial burdens, and we amortize these burdens 

over three years. 


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428See, e.g., 5 U.S.C. 552 et seq. Exemption 4 of 

the Freedom of Information Act provides an 

exemption for trade secrets and commercial or 

financial information obtained from a person and 

privileged or confidential. See 5 U.S.C. 552(b)(4). 

Exemption 8 of the Freedom of Information Act 

provides an exemption for matters that are 

contained in or related to examination, operating, 

or condition reports prepared by, on behalf of, or 

for the use of an agency responsible for the 

regulation or supervision of financial institutions. 

See 5 U.S.C. 552(b)(8). 

429See Clearing Agency Standards Adopting 

Release, supra note 404; CCA Standards Adopting 

Release, supra note 404. 

430This figure was calculated as follows: 

(Assistant General Counsel for 8 hours + 

Compliance Attorney for 6 hours) = 14 hours × 4 

respondent CMSPs = 56 hours. 431This figure was calculated as follows: 

(Assistant General Counsel at $602/hour × 8 hours 

= $4,816) + (Compliance Attorney at $334/hour × 

6 hours = $2,004) = $6,820 × 4 CMSPs equals 

$27,280. 432See CCA Standards Adopting Release, supra 

note 404, at 70899. 433This figure was calculated as follows: 

(Compliance Attorney for 25 hours + Computer 

Operations Manager for 10 hours) = 34 hours × 4 

respondent CMSPs = 136 hours. As discussed 

previously, supra note 407, the Commission 

estimates that the Inline XBRL requirement would 

require respondent CMSPs to incur one additional 

ongoing burden hour to apply and review Inline 

XBRL tags, as follows: (Compliance Attorney for 1 

hour) × 4 CMSPs = 4 hours. Taken together, the total 

ongoing burden is 140 hours (136 hours + 4 hours 

= 140 hours). 

434This figure was calculated as follows: 

[(Compliance Attorney at $397/hour × 24 hours = 

$9,528) + (Computer Operations Manager at $480/ 

hour × 10 hours = $4,800)] = $14,328 × 4 CMSPs 

= $57,312. The Commission also estimates the costs 

associated with the one burden hour associated 

with applying and review Inline XBRL tags as 

follows: (Compliance Attorney at $397/hour × 1 

hour = $397) × 4 CMSPs = $1,588. Taken together, 

the total amount is $58,900 ($57,312 + $1,588 = 

$58,900). 

435This figure was calculated as follows: $27,280 

(industry one-time burden) + $58,900 (industry 

ongoing burden) = $84,592. 

2As with our estimates relating to the previous amendments to Advisers Act Rule 204–2, the Commission expects that performance of these functions would most 

likely be allocated between compliance clerks and general clerks, with compliance clerks performing 17% of the function and general clerks performing 83% of the 

function. Data from SIFMA’s Office Salaries in the Securities Industry 2013, modified by Commission staff to account for an 1800-hour work-year and inflation, and 

multiplied by 2.93 to account for bonuses, firm size, employee benefits and overhead, suggest that costs for these position are $76 and $68, respectively. A blended 

hourly rate is therefore: (.17 × $76) + (.83 × $68) = $69.36 per hour. 3 Under the currently approved PRA for Rule 204–2, there is no cost burden other than the cost of the hour burden described herein, and we believe that the proposed amendment would not result in any cost burden other than the cost of the hour burden. 4Based on staff experience, we estimate that approximately 50% of small and mid-sized registered investment advisers that have institutional clients, do not currently maintain the proposed records. Based on Form ADV data as of December 2020, we estimate that there are 199 and 241 mid-sized and small entity RIAs, respectively, that would be required to retain the proposed new records, for a total of 440 advisers (these are advisers that report the following on Form ADV Part 1A 

as of December 2020: (i) Having any clients that are registered investment companies in response to Item 5.D, (ii) having any institutional separately managed accounts in Item 5.D., or separately managed account exposures in Section 5.K.(1) of Schedule D, or (iii) advising any reported hedge funds as per Section 7.B.(1) of 

Schedule D). The categories of mid-size and small entity advisers are based on responses to the following Items of Form ADV Part 1A: Item 2.a.(2) (mid-size RIA) 

and Items 5.F. and 12 (small entity). 50% of 440 advisers = 220 advisers. 5We estimate an initial burden of 2 hours per adviser, to update procedures and instruct personnel to retain the proposed required records in the advisers’ electronic recordkeeping systems, including any confirmations that they may receive in paper format and do not currently retain. We believe that these advisers already 

have recordkeeping systems to accommodate these records, which would include, at a minimum, spreadsheet formats and email retention systems which have an 

ability to capture a date and time stamp. For those advisers maintaining date and time stamped electronic records already, we estimate no incremental compliance 

costs. 6We believe that only a small number of advisers, or 1% of advisers that have institutional clients, do not send allocations or affirmations electronically to brokers 

or dealers (e.g., they communicate them by telephone). 1% of 11,283 RIAs with institutional clients = 112.83 advisers (rounded to 113). For new large advisers, we 

estimate that there would be no incremental cost associated with this proposed amendment, as we believe these advisers would implement electronic systems as 

part of their initial compliance with Rule 204–2, and that these electronic systems would have an ability to capture a date and time stamp. 7We estimate that these advisers would incur an initial burden of 2 hours of updating their procedures and training their personnel to send these communications 

through their existing electronic systems (such as, at a minimum, their current spreadsheet formats and current email and electronic retention system to maintain 

electronic records with date and time stamps). Because these email and electronic retention systems would provide date and time stamps, we estimate there would 

be no incremental compliance costs in connection with the proposed date and time stamp requirement. 8As noted above, we estimate that 70% of institutional trades are affirmed by custodians, and therefore advisers may not retain or have access to the affirmations 

these custodians sent to brokers or dealers. We believe that some of these advisers themselves, however, sometimes send affirmations to brokers or dealers. Because we do not know the number of advisers that correlate to these trades, we estimate for purposes of this collection of information that 70% of advisers with institutional clients make institutional trades that are affirmed by custodians. This estimate equals 7,898.1 advisers, rounded to 7,898 advisers (70% of 11,283 RIAs with 

institutional clients = approximately 7,898 advisers). 9We estimate that the proposed amendments to rule 204–2 would result in an initial increase in the collection of information burden estimate by 2 hours for these 

advisers, to direct their institutional clients’ custodians to electronically copy the adviser on any affirmations sent through email or for the adviser to use its systems to 

issue affirmations. 10 146.74 hours + 75.37 hours + 5,267.97 hours = 5,490.08 hours. 11 5,490.08 aggregate hours per year/13,804 total RIAs that are subject to Rule 204–2 = a blended average of 0.4 hours per adviser per year. 12The currently approved collection of information burden is 2,764,563 aggregate hours for 13,724 advisers, or 201.44 hours per adviser. The proposed new collection of information burden would add approximately 0.4 blended hours per adviser per year, for a total estimate of 201.84 blended hours per adviser per year, or 

2,786,199 aggregate hours under amended Rule 204–2 for all registered advisers subject to the rule (201.84 blended hours per adviser × 13,804 RIAs subject to 

Rule 204–2 = 2,786,199 aggregate burden hours for RIAs). 13 (201.84 estimated revised burden hours per adviser × $69.36 per hour) × 13,804 RIAs = $193,250,787.60 revised aggregate annual cost of the hour burden for 

Rule 204–2. 

B. Proposed Rule 17Ad–27 

The purpose of the collections under 

proposed Rule 17Ad–27 is to ensure 

that CMSPs facilitate the ongoing 

development of operational and 

technological improvements associated 

with the straight-through processing of 

institutional trades, which may in turn 

facilitate further shortening of the 

settlement cycle in the future. The 

collections are mandatory. To the extent 

that the Commission receives 

confidential information pursuant to 

this collection of information, such 

information would be kept confidential 

subject to the provisions of applicable 

law.428

Respondents under this rule are the 

three CMSPs to which the Commission 

has granted an exemption from 

registration as a clearing agency. The 

Commission anticipates that one 

additional entity may seek to become a 

CMSP in the next three years, and so for 

purposes of this proposal the 

Commission has assumed four 

respondents. 

Proposed Rule 17Ad–27 would 

require a CMSP to establish, implement, 

maintain, and enforce written policies 

and procedures. Based on the similar 

policies and procedures requirements 

and the corresponding burden estimates 

previously made by the Commission for 

Rules 17Ad–22(d)(8) and 17Ad– 

22(e)(2),429 the Commission estimates 

that respondent CMSPs would incur an 

aggregate one-time burden of 

approximately 56 hours to create new 

policies and procedures,430 and that the 

aggregate cost of this one time burden 

would be $27,280.431

Proposed Rule 17Ad–27 would 

impose ongoing burdens on a 

respondent CMSP as follows: (i) 

Ongoing monitoring and compliance 

activities with respect to the written 

policies and procedures required by the 

proposed rule; and (ii) ongoing 

documentation activities with respect to 

the required annual report. Based on the 

similar reporting requirements and the 

corresponding burden estimates 

previously made by the Commission for 

Rule 17Ad–22(e)(23),432 the 

Commission estimates that the ongoing 

activities required by proposed Rule 

17Ad–27 would impose an aggregate 

annual burden on respondent CMSPs of 

140 hours,433 and an aggregate cost of 

$58,900.434 The total industry cost is 

estimated to be $84,592.435


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436Public Law 104–121, Title II, 110 Stat. 857 

(1996). 

437See 5 U.S.C. 601 et seq. 

438 5 U.S.C. 603(a). 

439Section 601(b) of the RFA permits agencies to 

formulate their own definitions of ‘‘small entities.’’ 

See 5 U.S.C. 601(b). The Commission has adopted 

definitions for the term ‘‘small entity’’ for the 

purposes of rulemaking in accordance with the 

RFA. These definitions, as relevant to this 

rulemaking, are set forth in 17 CFR 240.0–10. 

440See 5 U.S.C. 605(b). 

TABLE 2—SUMMARY OF BURDEN ESTIMATES FOR PROPOSED RULE 17AD–27 

Name of information collection Type of 

burden 

Number of 

respondents 

Initial 

burden per 

entity 

(hours) 

Ongoing 

burden 

per entity 

(hours) 

Total annual 

burden 

per entity 

(hours) 

Total industry 

burden 

(hours) 

17Ad–27 .................................................................................... Recordkeeping 4 56 35 91 364 

C. Request for Comment 

Pursuant to 44 U.S.C. 3506(c)(2)(B), 

the Commission solicits comments to: 

154. Evaluate whether the proposed 

collections of information are necessary 

for the proper performance of the 

Commission’s functions, including 

whether the information shall have 

practical utility; 

155. Evaluate the accuracy of the 

Commission’s estimates of the burdens 

of the proposed collections of 

information; 

156. Determine whether there are 

ways to enhance the quality, utility, and 

clarity of the information to be 

collected; 

157. Evaluate whether there are ways 

to minimize the burden of collection of 

information on those who are to 

respond, including through the use of 

automated collection techniques or 

other forms of information technology; 

and 

158. Evaluate whether the proposed 

rules and rule amendments would have 

any effects on any other collection of 

information not previously identified in 

this section. 

Persons submitting comments on the 

collection of information requirements 

should direct them to the Office of 

Management and Budget, Attention: 

Desk Officer for the Securities and 

Exchange Commission, Office of 

Information and Regulatory Affairs, 

Washington, DC 20503, and should also 

send a copy of their comments to 

Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090, with 

reference to File Number S7–[ ]–22. 

Requests for materials submitted to 

OMB by the Commission with regard to 

this collection of information should be 

in writing, with reference to File 

Number S7–[ ]-22 and be submitted to 

the Securities and Exchange 

Commission, Office of FOIA/PA 

Services, 100 F Street NE, Washington, 

DC 20549–2736. As OMB is required to 

make a decision concerning the 

collection of information between 30 

and 60 days after publication, a 

comment to OMB is best assured of 

having its full effect if OMB receives it 

within 30 days of publication. 

VII. Small Business Regulatory 

Enforcement Fairness Act 

Under the Small Business Regulatory 

Enforcement Fairness Act of 1996,436 a 

rule is ‘‘major’’ if it has resulted, or is 

likely to result in: An annual effect on 

the economy of $100 million or more; a 

major increase in costs or prices for 

consumers or individual industries; or 

significant adverse effects on 

competition, investment, or innovation. 

The Commission requests comment on 

whether the proposed rules and rule 

amendments would be a ‘‘major’’ rule 

for purposes of the Small Business 

Regulatory Enforcement Fairness Act. In 

addition, the Commission solicits 

comment and empirical data on: The 

potential effect on the U.S. economy on 

annual basis; any potential increase in 

costs or prices for consumers or 

individual industries; and any potential 

effect on competition, investment, or 

innovation. 

VIII. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) requires the Commission, in 

promulgating rules, to consider the 

impact of those rules on small 

entities.437 Section 603(a) of the 

Administrative Procedure Act,438 as 

amended by the RFA, generally requires 

the Commission to undertake a 

regulatory flexibility analysis of all 

proposed rules to determine the impact 

of such rulemaking on ‘‘small 

entities.’’ 439 Section 605(b) of the RFA 

states that this requirement shall not 

apply to any proposed rule which, if 

adopted, would not have a significant 

economic impact on a substantial 

number of small entities.440 The 

Commission has prepared the following 

initial regulatory flexibility analysis in 

accordance with Section 603(a) of the 

RFA. 

A. Proposed Rules and Amendments for 

Rules 15c6–1, 15c6–2, and 204–2 

1. Reasons for, and Objectives of, the 

Proposed Actions 

The Commission is proposing to 

amend Exchange Act Rule 15c6–1 to 

shorten the standard settlement cycle 

for securities transactions (other than 

those excluded by the rule) from T+2 to 

T+1. The Commission believes that the 

proposed amendments to Rule 15c6–1 

to shorten the standard settlement cycle 

from two days to one day would offer 

market participants benefits by reducing 

exposure to credit, market, and liquidity 

risk, as well as related reductions to 

overall systemic risk. 

The Commission is also proposing 

new Exchange Act Rule 15c6–2 to 

prohibit broker-dealers from entering 

into contracts with their institutional 

customers unless those contracts require 

that the parties complete allocations, 

confirmations, and affirmations by the 

end of the trade date. The Commission 

believes that new Rule 15c6–2 would 

help facilitate settlement of these 

institutional trades in a T+1 or shorter 

standard settlement cycle by promoting 

the timely transmission of trade data 

necessary to achieve settlement. 

Furthermore, the Commission believes 

that proposed Rule 15c6–2 would foster 

continued improvements in 

institutional trade processing, which 

should in turn also further improve 

accuracy and efficiency, reduce fails, 

and in turn, collectively reduce 

operational risk. 

The Commission is proposing a 

related amendment to investment 

adviser recordkeeping rule under the 

Advisers Act designed to ensure that 

advisers that are parties to contracts 

under proposed Rule 15c6–2 retain 

records of confirmations received, and 

of the allocations and affirmations sent 

to a broker or dealer, with a date and 

time stamp that indicates when the 

allocation or affirmation was sent to the 

broker or dealer. 

2. Legal Basis 

The Commission proposes 

amendments to Rule 15c6–1 and new 

Rule 15c6–2 pursuant to authority set 

forth in the Exchange Act, particularly 


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441 15 U.S.C. 78o(c)(6). 

442 15 U.S.C. 78q–1. 

443 15 U.S.C. 78w(a). 

444 15 U.S.C. 80b–4 and 80b–11. 

445 17 CFR 240.17a–5(c). 

446 17 CFR 240.0–10(d). 

447See 17 CFR 275.0–7. 

448 15 U.S.C. 80b–3a. 

449Based on responses from registered investment 

adviser to Items 5.F. and 12 of Form ADV. 

450Based on data from Form ADV as of December 

2020, this figure represents registered investment 

advisers that: (i) Report clients that are registered 

investment companies in response to Item 5.D, (ii) 

report any institutional separately managed 

accounts in Item 5.D., or have particular separately 

managed account exposures in Section 5.K.(1) of 

Schedule D, or (iii) advise reported hedge funds as 

per Section 7.B.(1) of Schedule D. 

Sections 15(c)(6),441 17A,442 and 

23(a).443 The Commission proposes an 

amendment to Rule 204–2 pursuant to 

authority set forth in Sections 204 and 

211 of the Advisers Act.444

3. Small Entities Subject to the Proposed 

Rule and Proposed Rule Amendments 

Paragraph (c) of Exchange Act Rule 0– 

10 provides that, for purposes of 

Commission rulemaking in accordance 

with the provisions of the RFA, when 

used with reference to a broker or 

dealer, the Commission has defined the 

term ‘‘small entity’’ to mean a broker or 

dealer: (1) With total capital (net worth 

plus subordinated liabilities) of less 

than $500,000 on the date in the prior 

fiscal year as of which its audited 

financial statements were prepared 

pursuant to Rule 17a–5(d) under the 

Exchange Act,445 or if not required to 

file such statements, a broker-dealer 

with total capital (net worth plus 

subordinated liabilities) of less than 

$500,000 on the last business day of the 

preceding fiscal year (or in the time that 

it has been in business, if shorter); and 

(2) is not affiliated with any person 

(other than a natural person) that is not 

a small business or small 

organization.446

Under Commission rules, for the 

purposes of the Advisers Act and the 

Regulatory Flexibility Act, an 

investment adviser generally is a small 

entity if it: (i) Has assets under 

management having a total value of less 

than $25 million; (ii) did not have total 

assets of $5 million or more on the last 

day of the most recent fiscal year; and 

(iii) does not control, is not controlled 

by, and is not under common control 

with another investment adviser that 

has assets under management of $25 

million or more, or any person (other 

than a natural person) that had total 

assets of $5 million or more on the last 

day of its most recent fiscal year.447

The proposed amendments to Rule 

15c6–1 would prohibit broker-dealers, 

including those that are small entities, 

from effecting or entering into a contract 

for the purchase or sale of a security 

(other than an exempted security, 

government security, municipal 

security, commercial paper, bankers’ 

acceptances, or commercial bills) that 

provides for payment of funds and 

delivery of securities no later than the 

first business day after the date of the 

contract unless otherwise expressly 

agreed to by the parties at the time of 

the transaction. Proposed Rule 15c6–2 

would prohibit broker-dealers, where 

the broker-dealer has agreed with its 

customer to engage in an allocation, 

confirmation, or affirmation process, 

from effecting or entering into a contract 

for the purchase or sale of a security 

(other than an exempted security, a 

government security, a municipal 

security, commercial paper, bankers’ 

acceptances, or commercial bills) on 

behalf of a customer unless such broker 

or dealer has entered into a written 

agreement with the customer that 

requires the allocation, confirmation, 

affirmation, or any combination thereof, 

be completed no later than the end of 

the day on trade date in such form as 

may be necessary to achieve settlement 

in compliance with Rule 15c6–1(a). 

Based on FOCUS Report data, the 

Commission estimates that, as of June 

30, 2021, approximately 1,439 of brokerdealers might be deemed small entities 

for purposes of this analysis. 

The proposed amendment to Rule 

204–2 would require that advisers that 

are parties to contracts under proposed 

Rule 15c6–2 retain records of 

confirmations received, and of the 

allocations and affirmations sent to a 

broker or dealer, with a date and time 

stamp for each allocation (as applicable) 

and each affirmation that indicates 

when the allocation or affirmation was 

sent to the broker or dealer. As 

discussed in Part VI above, the 

Commission estimates that based on 

IARD data as of December 30, 2020, 

approximately 11,283 investment 

advisers would be subject to the 

proposed amendment to rule 204–2 

under the Advisers Act. Our proposed 

amendment would not affect most 

investment advisers that are small 

entities (‘‘small advisers’’) because they 

are generally registered with one or 

more state securities authorities and not 

with the Commission. Under Section 

203A of the Advisers Act, most small 

advisers are prohibited from registering 

with the Commission and are regulated 

by state regulators.448 Based on IARD 

data, the Commission estimates that as 

of December 2020, approximately 431 

advisers registered with the Commission 

are small entities under the Regulatory 

Flexibility Act.449 Of these, the 

Commission anticipates that 199, or 

46% of small advisers registered with 

the Commission, would be subject to the 

proposed amendment under the 

Advisers Act.450

4. Projected Reporting, Recordkeeping, 

and Other Compliance Requirements 

The proposed amendments to Rule 

15c6–1 would not impose any new 

reporting or recordkeeping requirements 

on broker-dealers that are small entities. 

However, the proposed amendments to 

Rule 15c6–1 may impact certain brokerdealers, including those that are small 

entities, to the extent that broker-dealers 

may need to make changes to their 

business operations and incur certain 

costs in order to operate in a T+1 

environment. 

For example, conversion to a T+1 

standard settlement cycle may require 

broker-dealers, including those that are 

small entities, to make changes to their 

business practices, as well as to their 

computer systems, and/or to deploy 

new technology solutions. 

Implementation of these changes may 

require broker-dealers to incur new or 

increased costs, which may vary based 

on the business model of individual 

broker-dealers as well as other factors. 

Additionally, conversion to a T+1 

standard settlement cycle may also 

result in an increase in costs to certain 

broker-dealers who finance the purchase 

of customer securities until the brokerdealer receives payment from its 

customers. To pay for securities 

purchases, many customers liquidate 

other securities or money fund balances 

held for them by their broker-dealers in 

consolidated accounts such as cash 

management accounts. However, some 

broker-dealers may elect to finance the 

purchase of customer securities until 

the broker-dealer receives payment from 

its customers for those customers that 

do not choose to liquidate other 

securities or have a sufficient money 

fund balance prior to trade execution to 

pay for securities purchases. Brokerdealers that elect to finance the 

purchase of customer securities may 

incur an increase in costs in a T+1 

environment resulting from settlement 

occurring one day earlier unless the 

broker-dealer can expedite customer 

payments. 

Proposed Rule 15c6–2 would not 

impose any new reporting or 

recordkeeping requirements on brokerdealers that are small entities. However, 


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451 0.4 hour × 431 small advisers = 172.4 blended 

hours in the aggregate for small advisers. 452 172.4 blended hours × $69.36 per hour = 

$11,957.66. See Part VI.A for a discussion of the 

monetized cost of the hour burden per adviser. 

453 5 U.S.C. 603(c). 

454 Id. 

the proposed rule may impact certain 

broker-dealers, including those that are 

small entities, to the extent that brokerdealers may need to make changes to 

their business operations and incur 

certain costs in order to achieve trade 

date completion of institutional trade 

allocations, confirmations, and 

affirmations. For example, completion 

of allocations, confirmations, and 

affirmations on trade date may require 

broker-dealers, including those that are 

small entities, to make changes to their 

business practices, as well as to their 

computer systems, and/or to deploy 

new technology solutions. 

Implementation of these changes may 

require broker-dealers to incur new or 

increased costs, which may vary based 

on the business model of individual 

broker-dealers as well as other factors. 

The proposed amendment to Rule 

204–2 imposes certain reporting and 

compliance requirements on certain 

investment advisers, including those 

that are small entities. It would require 

them to retain records of each 

confirmation received, and any 

allocation and each affirmation sent 

given to a broker or dealer, with a date 

and time stamp for each allocation (if 

applicable) and affirmation that 

indicates when the allocation or 

affirmation was sent to the broker or 

dealer. The reasons for and objectives 

of, the proposed amendment to the 

books and records rule are discussed in 

more detail in Part III.C. These 

requirements as well as the costs and 

burdens on investment advisers, 

including those that are small entities, 

are discussed in Parts V and VI and 

below. As discussed above, there are 

approximately 431 small advisers, and 

approximately 199 small advisers would 

be subject to amendments to the books 

and records rule. As discussed in Part 

VI.A, the proposed amendments to Rule 

204–2 under the Advisers Act would 

increase the annual burden by 

approximately 0.4 blended hours per 

adviser per year, or an increased burden 

of 172.4 blended hours in the aggregate 

for small advisers.451 The Commission 

therefore believes the annual monetized 

aggregate cost to small advisers 

associated with our proposed 

amendments would be approximately 

$11,957.66.452

5. Duplicative, Overlapping, or 

Conflicting Federal Rules 

The Commission believes that no 

federal rules duplicate, overlap or 

conflict with the proposed amendments 

to Rule 15c6–1, proposed Rule 15c6–2, 

or the proposed amendment to Rule 

204–2. 

6. Significant Alternatives 

The RFA requires that the 

Commission include in its regulatory 

flexibility analysis a description of any 

significant alternatives to the proposed 

rule which would accomplish the stated 

objectives of applicable statutes and 

which would minimize any significant 

economic impact of the proposed rule 

on small entities.453 Pursuant to Section 

3(a) of the RFA, the Commission’s 

initial regulatory flexibility analysis 

must consider certain types of 

alternatives, including: (a) The 

establishment of differing compliance or 

reporting requirements or timetables 

that take into account the resources 

available to small entities; (b) the 

clarification, consolidation, or 

simplification of the compliance and 

reporting requirements under the rule 

for small entities; (c) the use of 

performance rather than design 

standards; and (d) an exemption from 

coverage of the rule, or any part of 

thereof, for such small entities.454

The Commission considered 

alternatives to the proposed 

amendments to Rule 15c6–1 that would 

accomplish the stated objectives of the 

amendment without disproportionately 

burdening broker-dealers that are small 

entities, including: Differing compliance 

requirements or timetables; clarifying, 

consolidating or simplifying the 

compliance requirements; using 

performance rather than design 

standards; or providing an exemption 

for certain or all broker-dealers that are 

small entities. The purpose of Rule 

15c6–1 is to establish a standard 

settlement cycle for broker-dealer 

transactions. Alternatives, such as 

different compliance requirements or 

timetables, or exemptions, for Rule 

15c6–1, or any part thereof, for small 

entities would prevent the 

establishment of a standard settlement 

cycle and create substantial confusion 

over when transactions will settle. 

Allowing small entities to settle at a 

time later than T+1 could create a twotiered market in which order flow for 

small entities would not coincide with 

that of other firms operating on a T+1 

settlement cycle. Additionally, the 

Commission believes that establishing a 

single timetable (i.e., compliance date) 

for all broker-dealers, including small 

entities, to comply with the amendment 

is necessary to ensure that the transition 

to a T+1 standard settlement cycle takes 

place in an orderly manner that 

minimizes undue disruptions in the 

securities markets. In particular, 

because broker-dealers do not always 

know the identity of their counterparty 

when they enter a transaction, providing 

broker-dealers that are small entities 

with an exemption from the standard 

settlement cycle would likely create 

substantial confusion over when a 

transaction will settle. With respect to 

using performance rather than design 

standards, the Commission used 

performance standards to the extent 

appropriate under the statute. For 

example, broker-dealers have the 

flexibility to settle transactions under a 

standard settlement cycle shorter than 

T+1. For firm commitment offerings, 

small entities do retain the option under 

paragraph (d) to agree with their 

counterparty in advance of the 

transaction to use a settlement cycle 

other than T+1. In addition, under the 

proposed rule amendment, brokerdealers retain flexibility to tailor their 

contracts, systems and processes to 

choose how to comply with the rule 

most effectively. In Part V.C.5.b)(3), the 

Commission preliminarily estimates the 

costs likely to be incurred by brokerdealers to implement a T+1 standard 

settlement cycle. 

The Commission also considered 

alternatives to proposed Rule 15c6–2 

that would accomplish the stated 

objectives of the new rule without 

disproportionately burdening brokerdealers that are small entities, 

including: Differing compliance 

requirements or timetables; clarifying, 

consolidating or simplifying the 

compliance requirements; using 

performance rather than design 

standards; or providing an exemption 

for certain or all broker-dealers that are 

small entities. The purpose of proposed 

Rule 15c6–2 is to achieve trade date 

completion of institutional trade 

allocations, confirmations, and 

affirmations to facilitate a T+1 standard 

settlement cycle. Alternatives, such as 

different compliance requirements or 

timetables, or exemptions, for Rule 

15c6–2, or any part thereof, for small 

entities would undermine the purpose 

of establishing a standard settlement 

cycle. For example, allowing small 

entities to complete the allocation, 

confirmation, and affirmation processes 

at a time later than trade date could 

create a two-tiered market that could 

work to the detriment of small entities 

whose post-trade processing would not 

coincide with that of other firms 

operating on a T+1 settlement cycle. 

Additionally, the Commission believes 


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455See supra Part III.C. 

456As noted above, however, we estimate that 

50% of small and mid-sized advisers that have 

institutional clients do not currently maintain these 

records, and 1% of advisers that have institutional 

clients, do not send allocations or affirmations 

electronically to brokers or dealers. 

457See 17 CFR 240.0–10(d). 

458 DTCC ITP Matching is a subsidiary of DTCC, 

and in 2020, DTCC processed $2.329 quadrillion in 

financial transactions. DTCC, 2020 Annual Report. 

As of December 1, 2021, SS&C Technologies 

Holdings, Inc. (NASDAQ: SSNC) had a market 

capitalization of $19.35 billion. Bloomberg STP LLC 

is a wholly-owned by Bloomberg L.P., a global 

business and financial information and news 

company. 

that establishing a single timetable (i.e., 

compliance date) for all broker-dealers, 

including small entities, to comply with 

the new rule is necessary to ensure that 

the transition to a T+1 standard 

settlement cycle takes place in an 

orderly manner that minimizes undue 

disruptions in the securities markets. 

With respect to using performance 

rather than design standards, the 

Commission used performance 

standards to the extent appropriate 

under the statute. Under the proposed 

rule, broker-dealers have the flexibility 

to tailor their systems and processes, 

and generally to choose how, to comply 

with the new rule. 

The Commission considered 

alternatives to the proposed amendment 

to Rule 204–2 that would accomplish 

the stated objectives of the amendment 

without disproportionately burdening 

investment advisers that are small 

entities, including: Differing compliance 

or reporting requirements or timetables 

that take into account the resources 

available to small entities; clarifying, 

consolidating or simplifying the 

compliance and reporting requirements; 

using performance rather than design 

standards; or providing an exemption 

from coverage of all or part of the 

proposed rule for investment advisers 

that are small entities. Regarding the 

first and fourth alternatives, the 

Commission believes that establishing 

different compliance or reporting 

requirements or timetables for small 

advisers, or exempting small advisers 

from the proposed rule, or any part 

thereof, would be inappropriate under 

these circumstances. Because the 

protections of the Advisers Act are 

intended to apply equally to clients of 

both large and small firms, it would be 

inconsistent with the purposes of the 

Advisers Act to specify differences for 

small entities under the proposed 

amendment to Rule 204–2. While it is 

the staff’s experience that some small 

and mid-size advisers do not currently 

retain these records—whereas most 

larger advisers already retain them—the 

Commission believes that the initial 

burden on small advisers of retaining 

the proposed records would not be 

large.455 As discussed above, the 

Commission believes these advisers 

would need to update their policies and 

procedures and instruct personnel to 

retain these records in their electronic 

recordkeeping systems, including any 

confirmations that they may have 

retained in paper format. However, 

because the Commission believes these 

advisers already have recordkeeping 

systems to accommodate these records 

(which would include, at a minimum, 

existing spreadsheet formats and email 

retention systems), the Commission 

does not believe the two hour additional 

burden of complying with this proposed 

amendment would warrant establishing 

a different timetable for compliance for 

small advisers. In addition, as discussed 

above, our staff would use the 

information that advisers would 

maintain to help prepare for 

examinations of investment advisers 

and verify that an adviser has completed 

the steps necessary to complete 

settlement in a timely manner in 

accordance with proposed rule 15c6– 

1(a). Establishing different conditions 

for large and small advisers would 

negate these benefits. Regarding the 

second alternative, we believe the 

current proposal is clear and that further 

clarification, consolidation, or 

simplification of the compliance 

requirements is not necessary. Our 

proposal states the types of 

communications—confirmations, any 

allocations, and affirmations—that 

advisers must retain in their records, 

and that allocations (if applicable) and 

affirmations must be date and time 

stamped. We believe that by proposing 

to clearly list these types of 

communications as required records, 

advisers will not need to parse whether, 

and if so which, current requirement 

under Rule 204–2 captures these posttrade communications. Further, the 

proposed requirement to date and time 

stamp the allocations (if applicable) and 

affirmations sent to a broker or dealer is 

clear and consistent with many 

advisers’ current practices of date and 

time stamping these records, as 

discussed in Part VI.A, above.456

Regarding the third alternative, the 

proposed amendment to Rule 204–2 is 

narrowly tailored to correspond to the 

proposed rules and rule amendments 

under the Exchange Act, and using 

performance rather than design 

standards would be inconsistent with 

our statutory mandate to protect 

investors, as advisers must maintain 

books and records in a uniform and 

quantifiable manner that it is useful to 

our regulatory and examination 

program. 

7. Request for Comment 

The Commission encourages written 

comments on matters discussed in the 

initial RFA. In particular, the 

Commission seeks comment on the 

number of small entities that would be 

affected by the proposed amendments to 

Rule 15c6–1, proposed Rule 15c6–2, 

and the proposed amendment to Rule 

204–2, and whether the effect(s) on 

small entities would be economically 

significant. Commenters are asked to 

describe the nature of any effect(s) the 

proposed amendments to Rule 15c6–1, 

proposed Rule 15c6–2, and the 

proposed amendment to Rule 204–2 

may have on small entities, and to 

provide empirical data to support their 

views. 

B. Proposed Rule 17Ad–27 

Proposed Rule 17Ad–27 would apply 

to clearing agencies that are CMSPs. For 

the purposes of Commission 

rulemaking, a small entity includes, 

when used with reference to a clearing 

agency, a clearing agency that (i) 

compared, cleared, and settled less than 

$500 million in securities transactions 

during the preceding fiscal year, (ii) had 

less than $200 million of funds and 

securities in its custody or control at all 

times during the preceding fiscal year 

(or at any time that it has been in 

business, if shorter), and (iii) is not 

affiliated with any person (other than a 

natural person) that is not a small 

business or small organization.457

Based on the Commission’s existing 

information about the CMSPs that 

would be subject to Rule 17Ad–27, the 

Commission believes that all such 

CMSPs would not fall within the 

definition of a small entity described 

above.458 While other CMSPs may 

emerge and seek to register as clearing 

agencies or obtain exemptions from 

registration as a clearing agency with 

the Commission, the Commission does 

not believe that any such entities would 

be ‘‘small entities’’ as defined in 17 CFR 

240.0–10(d). Accordingly, the 

Commission believes that any such 

CMSP would exceed the thresholds for 

‘‘small entities’’ set forth in in 17 CFR 

240.0–10. 

For the reasons described above, the 

Commission preliminarily believes that 

proposed Rule 17Ad–27 would not have 

a significant economic impact on a 

substantial number of small entities and 

requests comment on this analysis. 


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10500 Federal Register / Vol. 87, No. 37 / Thursday, February 24, 2022 / Proposed Rules 

Statutory Authority and Text of the 

Proposed Rules and Rule Amendments 

The Commission is proposing 

amendments to Rule 15c6–1, new Rule 

15c6–2, and new Rule 17Ad–27 under 

the Commission’s rulemaking authority 

set forth in Sections 15(c)(6), 17A and 

23(a) of the Exchange Act [15 U.S.C. 

78o(c)(6), 78q–1, and 78w(a) 

respectively]. The Commission is 

proposing amendments to Rule 204–2 

under the Advisers Act under the 

authority set forth in Sections 204 and 

211 of the Advisers Act [15 U.S.C. 80b– 

4 and 80b–11]. 

List of Subjects in 17 CFR Parts 232, 

240, and 275 

Reporting and recordkeeping 

requirements, Securities. 

Text of Amendment 

For the reasons stated in the 

preamble, the Securities and Exchange 

Commission proposes to amend 17 CFR 

parts 232, 240, and 275 as set forth 

below: 

PART 232— REGULATION S–T— 

GENERAL RULES AND REGULATIONS 

FOR ELECTRONIC FILINGS 

■ 1. The authority citation for part 232 

continues to read as follows: 

Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 

77s(a), 77z–3, 77sss(a), 78c(b), 78l, 78m, 78n, 

78o(d), 78w(a), 78ll, 80a–6(c), 80a–8, 80a–29, 

80a–30, 80a–37, 7201 et seq.; and 18 U.S.C. 

1350, unless otherwise noted. 

* * * * * 

■ 2. Amend § 232.101 by adding 

paragraph (xxii) to read as follows: 

§ 232.101 Mandated electronic 

submissions and exceptions. 

(a) * * * 

(1) * * * 

(xxii) Reports filed pursuant to Rule 

17Ad–27 (§ 240.17Ad–27) under the 

Exchange Act. 

■ 3. Add § 232.409 to read as follows: 

§ 232.409 Straight-through processing 

report interactive data. 

The straight-through processing report 

required by Rule 17Ad–27 (§ 240.17Ad– 

27) under the Exchange Act must be 

submitted in Inline XBRL in accordance 

with the EDGAR Filer Manual. 

PART 240—GENERAL RULES AND 

REGULATIONS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 4. The authority citation for part 240 

continues to read as follows: 

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 

77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 

77sss, 77ttt, 78c, 78c–3, 78c–5, 78d, 78e, 78f, 

78g, 78i, 78j, 78j–1, 78k, 78k–1, 78l, 78m, 

78n, 78n–1, 78o, 78o–4, 78o–10, 78p, 78q, 

78q–1, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 

80a–20, 80a–23, 80a–29, 80a–37, 80b–3, 80b– 

4, 80b–11, and 7201 et. seq., and 8302; 7 

U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 

U.S.C. 1350; Pub. L. 111–203, 939A, 124 Stat. 

1376 (2010); and Pub. L. 112–106, sec. 503 

and 602, 126 Stat. 326 (2012), unless 

otherwise noted. 

* * * * * 

■ 5. Amend § 240.15c6–1 by reserving 

paragraph (c) and revising paragraphs 

(a), (b), and (d) to read as follows: 

§ 240.15c6–1 Settlement cycle. 

(a) Except as provided in paragraphs 

(b) and (d) of this section, a broker or 

dealer shall not effect or enter into a 

contract for the purchase or sale of a 

security (other than an exempted 

security, a government security, a 

municipal security, commercial paper, 

bankers’ acceptances, or commercial 

bills) that provides for payment of funds 

and delivery of securities later than the 

first business day after the date of the 

contract unless otherwise expressly 

agreed to by the parties at the time of 

the transaction. 

(b) Paragraph (a) of this section shall 

not apply to contracts: 

(1) For the purchase or sale of limited 

partnership interests that are not listed 

on an exchange or for which quotations 

are not disseminated through an 

automated quotation system of a 

registered securities association; 

(2) For the purchase or sale of 

securities that the Commission may 

from time to time, taking into account 

then existing market practices, exempt 

by order from the requirements of 

paragraph (a) of this section, either 

unconditionally or on specified terms 

and conditions, if the Commission 

determines that such exemption is 

consistent with the public interest and 

the protection of investors. 

(c) Reserved. 

(d) For purposes of paragraph (a) of 

this section, the parties to a contract 

shall be deemed to have expressly 

agreed to an alternate date for payment 

of funds and delivery of securities at the 

time of the transaction for a contract for 

the sale for cash of securities pursuant 

to a firm commitment offering if the 

managing underwriter and the issuer 

have agreed to such date for all 

securities sold pursuant to such offering 

and the parties to the contract have not 

expressly agreed to another date for 

payment of funds and delivery of 

securities at the time of the transaction. 

■ 6. Add § 240.15c6–2 to read as 

follows: 

§ 240.15c6–2 Same-day allocation, 

confirmation, and affirmation. 

For contracts where parties have 

agreed to engage in an allocation, 

confirmation, or affirmation process, no 

broker or dealer shall effect or enter into 

a contract for the purchase or sale of a 

security (other than an exempted 

security, a government security, a 

municipal security, commercial paper, 

bankers’ acceptances, or commercial 

bills) on behalf of a customer unless 

such broker or dealer has entered into 

a written agreement with the customer 

that requires the allocation, 

confirmation, affirmation, or any 

combination thereof, be completed as 

soon as technologically practicable and 

no later than the end of the day on trade 

date in such form as may be necessary 

to achieve settlement in compliance 

with paragraph (a) of § 240.15c6–1. 

■ 7. Add § 240.17Ad–27 to read as 

follows: 

§ 240.17Ad–27 Straight-through 

processing by central matching service 

providers. 

A clearing agency that provides a 

central matching service for transactions 

involving broker-dealers and their 

customers must establish, implement, 

maintain, and enforce policies and 

procedures that facilitate straightthrough processing. Such clearing 

agency also must submit to the 

Commission every twelve months a 

report that describes the following: 

(a) Its current policies and procedures 

for facilitating straight-through 

processing; 

(b) Its progress in facilitating straightthrough processing during the twelvemonth period covered by the report; and 

(c) The steps it intends to take to 

facilitate straight-through processing 

during the twelve-month period that 

follows the period covered by the 

report. 

The report must be filed electronically 

on EDGAR and must be provided as 

interactive data as required by § 232.409 

of this chapter (Rule 409 of Regulation 

S–T) in accordance with the EDGAR 

Filer Manual. 

PART 275—RULES AND 

REGULATIONS, INVESTMENT 

ADVISERS ACT OF 1940 

■ 8. The authority citation for part 275 

continues to read as follows: 

Authority: 15 U.S.C. 80b–2(a)(11)(G), 80b– 

2(a)(11)(H), 80b–2(a)(17), 80b–3, 80b–4, 80b– 

4a, 80b–6(4), 80b–6a, and 80b–11, unless 

otherwise noted. 

* * * * * 

Section 275.204–2 is also issued under 15 

U.S.C 80b–6. 

* * * * * 


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■ 9. Amend § 275.204–2 by revising 

paragraph (a)(7)(iii) to read as follows: 

§ 275.204–2 Books and records to be 

maintained by investment advisers. 

(a) * * * 

(7) * * * 

(iii) The placing or execution of any 

order to purchase or sell any security; 

and if the adviser is a party to a contract 

under rule § 240.15c6–2, each 

confirmation received, and any 

allocation and each affirmation sent, 

with a date and time stamp for each 

allocation (if applicable) and affirmation 

that indicates when the allocation or 

affirmation was sent to the broker or 

dealer. 

* * * * * 

By the Commission. 

Dated: February 9, 2022. 

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2022–03143 Filed 2–23–22; 8:45 am] 

BILLING CODE 8011–01–P 


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