WASHINGTON – The Municipal Securities Rulemaking Board filed proposed amendments to two rules with the Securities and Exchange Commission late Tuesday in an effort to move the municipal securities market to a two- instead three-day settlement cycle.
The amendments would modify MSRB Rule G-12 on uniform practice, G-15 on confirmation, clearance, settlement, and other requirements with respect to transactions with customers to allow them to be settled within two days of execution instead of three. The modifications have received general support from industry groups in the past.
The MSRB's proposal would be tied to the SEC shifting to a T+2 cycle under its Rule 15c6-1, which governs settlement for corporate bond and equity markets, and would be part of an industry migration to the new cycle that would be completed by the end of the third quarter of 2017. The MSRB has not set a compliance date for the proposed rule change but said it will publish a notice on its website of the compliance date, which will match up with the industry's transition to T+2 settlement.
The last time the settlement timeframe changed was in 1995, when it shifted to T+3 from T+5.
In its filing, the MSRB said it believes the shortened cycle "will improve the overall efficiency of the securities markets, promote financial stability, and better align U.S. securities markets with global markets."
The idea for a change to a T+2 settlement cycle started in 2012 when the Depository Trust and Clearing Corp. started an effort to shorten the U.S. settlement cycle and sponsored a cost-benefit analysis of shortening the settlement cycle to T+2 or T+1. It released a white paper in 2014 that gave its reasoning for a T+2 cycle.
It also formed the Industry Steering Committee in 2014 to lead the move to a shorter settlement timeframe. The ISC later sent a letter to the SEC laying out the necessary steps that the commission and other regulatory agencies would need to take to make the changes. In the letter, the ISC recommended relevant regulatory organizations confirm their support for the transition by the third quarter of 2015 and adopt the necessary rule changes by the second quarter of 2016. That timeline allows the transition to T+2 by the third quarter of 2017, the ISC has said.
The MSRB has consistently said it believes it is on schedule to meet those deadlines.
SEC Commissioners Michael Piwowar and Kara Stein released a statement in June applauding the industry's leadership on the issue and saying they were interested in having the settlement cycle shortened "as soon as possible."
SEC chair Mary Jo White said in a September letter to the Securities Industry and Financial Markets Association and the Investment Company Institute, which have been leaders on the change, that she would work to make regulatory and other changes to support shortening the settlement cycle by 2017.
