SR-FINRA-2023-017

On November 29, 2023, the Financial Industry Regulatory Authority, FINRA, announced on its website that it has filed with the Securities and Exchange Commission (SEC) proposed rule changes for immediate effectiveness to make conforming adjustments to its rules in relation to the SEC’s final regulation (EventID 19797) to shorten the standard settlement cycle for most broker-dealer securities transactions from two business days (T+2) to one business day (T+1). The rule changes would apply on same day as the SEC’s amendments to Exchange Act Rule 15c6-1 and adoption of new Rule 15c6-2.
#### Background
To recall, the changes to Exchange Act Rule 15c6-1 require that broker-dealers may only enter or effect securities transactions whose payment and final delivery of affected securities – settlement – take place within 24 hours following execution (T+1). This requirement does not need to be met, if the parties to the transaction have agreed on other settlement terms.
New Rule 15c6-2 mandates that where transactions must be allocated, confirmed, or affirmed, e.g. in cases of investment fund orders and transactions for purposes of custodial reconciliation, broker-dealers must either have policies and procedures in place to ensure that such processes can be completed „as soon as technologically practicable“, but no later than the end of the trade date or must enter into written agreements with their clients to ascertain such completion within same timeframe.
#### Proposed changes
FINRA now seeks to make conforming amendments to a large number of rules, all relating to the new requirements. The affected FINRA rules are listed above. Some rule changes are briefly described below; for all of them, please refer to the enclosed rule filing.
(1) Changes to FINRA Rule 2341 – Investment Company Securities: Currently, the rule mandates that payments received from customers for the purchase of investment company shares (mutual funds) must be transmitted to the payee by the end of the second business day following the receipt of a customer’s order to purchase such shares or by the end of one business day after receiving a customer’s payment for such shares, depending on which timeline is later. The proposed change seeks to modify the existing requirement to reduce the time frame for payment from two business days to one business day.
(2) Changes to FINRA Rules 6380A, 6380B, and 6622 – Transaction Reporting: These rules pertain to the transaction reports to be transmitted for instance to FINRA’s Alternative Display Facility (ADF) for off-exchange transactions. Currently, reporting requires the indication of whether or not a trade is a „next day trade“. As this will become the standard under the SEC’s new settlement rules, such indication is no longer required.
(3) Changes to FINRA Rule 11210 – Sent by Each Party: Currently, the rule mandates that each party involved in a transaction, excluding cash transactions, must send a uniform comparison or confirmation of the transaction by the first business day following the date of the transaction. This period will now be shortened to require the sending by the end of the trade day.