May 28 Stock Market: What changes in Wall Street from today?

The US Securities and Exchange Commission (SEC) has introduced new trading rules to expedite the trading processes. With the new trading regulations the US SEC has implemented, you will receive your money faster than before after selling your shares.

US Securities and Exchange Commission (SEC) issued a statement on the conversion of the U.S. securities market to a T+1 standard settlement cycle, which will take place on May 28, 2024. Shortening the settlement cycle means, investors who sell their stock on a Monday, will get their money on Tuesday.

What is Settlement?

When you buy or sell securities, “settlement” refers to the official transfer of securities to the buyer’s account and the cash to seller’s account. Since 2017, the settlement cycle – the time between the transaction date and the settlement date – for most securities transactions has been two business days – often referred to as “T+2.” Under “T+2,” if you sold shares of ABC stock on Monday, the transaction would settle on Wednesday.

What Will Change?

Under the new “T+1” settlement cycle, all applicable securities transactions from U.S. financial institutions will settle in one business day of their transaction date. For example, if you sell shares of ABC stock on Monday, the transaction will settle on Tuesday.

That means that if you have a securities certificate, you may need to deliver your securities certificate to your broker-dealer earlier or through different means than you do today. If you hold your securities with your broker-dealer, your broker-dealer will deliver the securities on your behalf one day earlier.

Similarly, if you are buying securities subject to the “T+1” settlement cycle, you may need to pay for your securities transactions one business day earlier. If you have a margin account, the “T+1” settlement cycle may impact certain provisions of your margin agreement.

The “T+1” settlement cycle will apply to the same securities transactions covered by the “T+2” settlement cycle. These include transactions for stocks, bonds, municipal securities, exchange-traded funds, certain mutual funds, and limited partnerships that trade on an exchange.

On February 15, 2023, the SEC adopted a set of rule amendments and new rules to facilitate the shortening of the standard settlement cycle for most broker-dealer transactions from two business days after the trade date (or T+2) to one business day after the trade date (or T+1).

The SEC originally established a standard settlement cycle of three business days (or T+3) for most securities transactions in 1993, shortening the prevailing practice at the time of settling securities transactions within five business days of the trade date.

In 2017, the SEC shortened the standard settlement cycle from T+3 to T+2. While previous transitions were successful, a transition to a shorter settlement cycle may lead to a short-term uptick in settlement fails and challenges to a small segment of market participants.

Amendments to Rule 15c6-1, which reduces the length of the standard settlement cycle from two business days after the trade date (“T+2”) to one business day after the trade date (“T+1”) have already been made. Rule 15c6-1 applies to brokers and dealers required to register in the United States (“U.S. broker-dealers”) executing transactions in securities. However, there are certain exemptions and exclusions as well.