Investment Read Time: 5 min

CHANGES BEGIN MAY 28TH

As previously announced, the SEC’s new standard for trade settlement will become the next business day after a trade (T+1) beginning May 28. (See Related Stories.)

How will the change impact you?
Advisors will need to:

  • Ensure cash to settle a purchase is in the account the day after trade date.
  • If funding via money movement, keep in mind:
    • Check deposits will generally settle into available cash to trade same day once the deposit is approved in RCD.
    • EFTs will settle into available cash within 24 hours of the deposit posting to activity. For WMS accounts, Envestnet will not see the cash as available for 48 hours from deposit. 
    • Wires are available as soon as they are visible in the account.
    • Journals of core sweep cash are available as soon as they are visible in the account; journals of in-kind positions will be available after an overnight cycle.
    • For WMS, money market funds do not reflect in available cash to trade.
  • If funding via selling securities, ensure that funding transactions settle in accordance with the purchase transaction and settlements line up:
    • As most domestic instruments will settle T+1, the opportunity for settlement mismatch is drastically reduced.
    • Best practice is to ensure settlements of any funding transactions match settlement on a purchase.

Regulation T requirements have been adjusted; accordingly, the payment period for Reg T (initial) margin calls also has been reduced by one day to T+3.

Securities impacted
The T+1 rule amendment applies to the same securities transactions currently covered by the T+2 settlement cycle:

  • Stocks.
  • Bonds.
  • Municipal securities.
  • Exchange-traded funds.
  • Certain mutual funds.
  • Limited partnerships that trade on an exchange.

Beginning May 28, these transactions will align with the settlement times for options and government securities.

Additionally, the National Securities Clearing Corporation will update its Mutual Funds Fund/SERV system to T+1 for money market, mutual fund, and unit investment trust transactions.

Currently, the securities industry completes settlement for equities, corporate and municipal bonds, certain asset-backed securities, and UITs on the second day after a trade is executed (T+2) by sending payment for the trade to the seller and the securities to the buyer.

FURTHER INFO

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Categories: MMLIS

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