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SEC Shortens Settlement Cycle for Most Securities to T+1: Updates for Exams Going Forward

The SEC has officially updated the rules to shorten the standard settlement cycle for most securities transactions from two business days after the trade (T+2) to one business day after the trade (T+1). Broker-dealers must comply with this new rule by May 28, 2024, and our material has been updated to reflect these changes.

Important Note for Exam Candidates

If your exam is on or after May 28, 2024, be prepared to answer questions based on the new T+1 settlement rules. These changes apply to the SIE and all series exams including the Series 7, Series 63, Series 79, Series 24, and Series 66.

Why the Change?

The primary goal of this change is to reduce market participants’ exposure to credit market and liquidity risk. Additionally, the SEC is exploring the possibility of same-day settlement (T+0) in the future.

Securities Affected by T+1 Settlement

The T+1 settlement cycle applies to a wide range of securities, including:

  • Common and preferred stocks
  • Corporate notes and bonds
  • Mutual funds
  • Exchange-traded funds (ETFs)
  • Unit investment trusts (UITs) and closed-end funds
  • Municipal debt
  • American depository receipts (ADRs)
  • Options
  • Collateralized mortgage obligations (CMOs) and other asset-backed securities
  • Money market instruments
  • Warrants and rights
  • Exchange-traded limited partnerships

Impact of the T+1 Settlement

The shift from T+2 to T+1 settlement reduces exposure to credit and market risk, enhancing overall market efficiency and liquidity. Financial institutions must upgrade systems and streamline operations to meet the faster settlement cycle. This change requires precise record-keeping and timely confirmations, benefiting investors with quicker access to funds and transaction completions.

The SEC’s move to shorten the settlement cycle to T+1 is a significant change that you need to be prepared for in your regulatory exams. Our communications, resources, and guidance are updated immediately around every rule change, ensuring you have all the information you need. Make sure to review the updated settlement rules and how they apply to different securities so that you’re ready for any related questions on your test.

As a faculty member of the Knopman Marks team, Kris has found the perfect way to combine what he loves with what he knows. From the first time Kris stood in front of a classroom to teach, he was hooked on the feeling. In college, he chose to work as a TA for numerous professors. Before joining Knopman Marks in 2020, Kris was an investment banker at Citigroup working in the global healthcare group. He specialized in evaluating strategic and financial implications of business decisions for large, well-known healthcare companies.