Changes to Securities Transaction Settlement Cycle

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Michael P. Kurtz, CPA

In September, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency issued a notice of proposed rule (NPR) changes for securities purchased or sold by FDIC supervised institutions, national bank and federal savings associations. Currently, the settlement cycle for securities purchased or sold is three business days (T+3, trade date plus three days), but under the NPR it would shorten the settlement cycle to two business days (T+2). The adoption of this NPR would align with the new industry standard settlement cycle implemented by the SEC, (Securities Transaction Settlement Cycle Rule 15c6-1), which became effective September 5, 2017. The following points were taken from the summary of the proposed changes:

  • The majority of the changes needed to implement the NPR will be completed by third party industry custodians, systems and service providers, broker-dealers through which institutions trade for themselves or on behalf of their fiduciary and custody accounts, and broker-dealers providing retail securities brokerage services to institution customers.
  • Amends Section 344.7 of the FDIC's Rules and Regulations and the corresponding OCC regulations by shortening the settlement cycle from three days to two (T+2 settlement cycle). 
  • Under Section 344.7, an FDIC-supervised institution generally may not effect or enter into a contract for the purchase or sale of a security that provides for payment of funds and delivery of securities later than the third business day after the date of the contract, unless otherwise expressly agreed to by the parties at the time of the transaction. The OCC's regulations contain similar provisions applicable to national banks and federal savings associations.

To view the entire proposal click here.