SEC Examinations Division to Evaluate Firms’ Readiness for T+1

The U.S. Securities and Exchange Commission's (SEC's) Examinations Division has issued a Risk Alert reminding broker-dealers, clearing agencies, and investment advisers of their new obligations in connection with the transition to T+1 settlement of certain securities transactions and noted that it will be examining registrants’ preparedness.

The transition is scheduled for May 28, 2024, the Tuesday following Memorial Day weekend.

The Alert advises market participants, including advisers and broker-dealers, to “prepare for the shortened settlement cycle and understand the impacts of T+1 and the final rules to identify necessary changes and critical dependencies in order to successfully manage this transition.” As we approach the May deadline, firms are testing their ability to perform on the new schedule. The Securities Industry and Financial Markets Association (SIFMA), Investment Company Institute (ICI), Depository Trust & Clearing Corporation (DTCC) and Deloitte recently issued an industry briefing that provides a helpful update on the transition and the testing in progress.

Investment Advisers

The Advisers Act Rule 204-2 was amended to impose new recordkeeping requirements for transactions subject to Rule 15c6-2(a). Advisers will soon be required to keep date and time stamp confirmations they receive, as well as each allocation and affirmation they send or receive.

Also noted is the fact that some advisers may experience difficulties during the transition if they manually affirm their trades. Advisers should confirm they have updated their recordkeeping policies and procedures to address these new requirements and they are able to meet the new deadlines for allocations and affirmations.

Broker-dealers

Broker-dealers are reminded that amended Rule 15c6-1(a) will prohibit them from effecting or entering into trades that settle later than T+1, unless the parties expressly agree otherwise at the time of the transaction. The Alert also highlights the difficulties broker-dealers that manually affirm their trades may experience during the transition.

The types of securities that will not be subject to Rule 15c6-1(a) are also summarized in the alert. It further notes that paragraph(c) of amended Rule 15c6-1 shortens the standard settlement cycle for firm commitment offerings priced after 4:30 p.m. ET from four business days after the trade date (T+4) to T+2.

The amended Rule 15c6-2 will also require broker-dealers to complete all allocations, confirmations, and affirmations by the end of the trade date for all transactions with institutional customers and to adopt the necessary contractual changes and amend associated policies and procedures, as appropriate to effect and support that change.

Our recommendations

The Alert provides a detailed road map for the questions and testing that examiners will conduct to test firms’ preparedness for T+1 and appends sample requests for information that you may receive.

To be exam ready, we recommend that broker-dealers and investment advisers focus their attention on Section III of the Alert and Appendix A and prepare to answer the questions and access the documents and data mentioned.

How we help

Broker-dealers have a number of obligations for FINRA, the SEC, and other regulators. ACA Signature can help.

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Reach out to your ACA consultant to learn how to establish and scale your GRC programs as your business evolves. Or contact us directly to learn how we help you launch, grow, and protect your firm. 

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