The SEC’s new rules imposing a T + 1 settlement cycle for most securities transactions take effect on May 28, 2024. The previous default settlement cycle had been T + 2. For firm commitment offerings priced after 4:30 p.m. eastern time, including IPOs, the settlement cycle will be reduced from T+4 to T+2. While the SEC believes that relief from physical prospectus delivery under Securities Act Rule 172 will remove prospectus delivery as an impediment to the compressed settlement cycle, the new settlement cycle could still create challenges for securities sales excepted from Rule 172’s “access equals delivery” approach, such as those included in business combination transactions, as well as for securities firms that choose physical delivery for liability mitigation or other reasons. The parties remain free to separately negotiate the settlement timing at the time of the trade, which may be an option in the context of business combinations, but individual negotiation will be impractical in most circumstances. The SEC also adopted new rules for broker-dealers, investment advisors and central matching service providers with the goal of improving trades and straight-through processing. Investment advisors will be required to create and retain records of confirmations, allocations and affirmations for certain types of transactions.
