Question from StopFTDs, When did the SEC reduce the settlement period to two days instead of three in the USA?
Answer from AI:
The U.S. Securities and Exchange Commission (SEC) reduced the settlement period from three days to two on September 5, 2017. This change was implemented to enhance efficiency, reduce risk, and ensure a more resilient marketplace.
What is the Settlement Period?
The settlement period is the time between the execution of a trade and when the transaction is fully completed. During this time, the buyer must make payment for the securities purchased, and the seller must deliver the sold securities.
Why was the Settlement Period Reduced?
The SEC reduced the settlement period to decrease the amount of money that needs to be held in accounts to cover potential defaults, thus reducing systemic risk. The change also aimed to align the U.S. with international markets, many of which already had a two-day settlement period.
The SEC’s decision to reduce the settlement period was made under Rule 15c6-1(a) of the Securities Exchange Act of 1934. This rule prohibits broker-dealers from effecting or entering into a contract for the purchase or sale of a security that provides for payment of funds and delivery of securities later than the second business day after the date of the contract, unless otherwise expressly agreed to by the parties at the time of the transaction.
Consulting a Legal Professional
While this information provides a general overview of the change in the settlement period, it’s always a good idea to consult with a legal professional or financial advisor for personalized advice. They can provide more detailed information and guidance based on your specific circumstances.
Remember: The SEC’s reduction of the settlement period to two days is a general rule. There may be exceptions or additional requirements in certain cases, so it’s important to seek professional advice if you have specific questions or concerns.
For more information, you can refer to the official SEC press release announcing the change.