WASHINGTON - Securities and Exchange Commission chair Mary Jo White vowed to work to make regulatory and other changes to support shortening the settlement cycle for municipal bond and certain other secondary market transactions from three to two days after the trade date by 2017.
White made the promise in a letter sent Wednesday to Securities Industry and Financial Markets Association and Investment Company Institute, which had sent her a joint letter in June, urging SEC action to shorten the settlement cycle. In their letter, the two groups laid out the relevant rules they thought would have to be changed as well as arguments that the shorter cycle would "promote financial stability and significantly mitigate risks to the financial system."
The 20-member Shortened Settlement Cycle Industry Steering Committee, created in 2014 by the Depository Trust and Clearing Corp. in collaboration with the financial services industry, released a white paper in June that outlined a plan for moving to a two-day settlement cycle for equities, corporate bonds, municipal bonds, and unit investment trust trades by the third quarter of 2017.
White said the SEC staff has continued to do additional outreach and analysis on the settlement cycle issues since the white paper release and echoed the paper in saying a shortened cycle "should yield important benefits, including reduced counterparty risk, decreased clearing capital requirements, reduced pro-cyclical margin and liquidity demands, and increased global harmonization."
"For these and other reasons, it is in my view incumbent upon all segments of the securities industry, including, where needed, the regulatory community, to work together expeditiously on this important matter," White said.
The chairwoman said the securities industry should use the "time at hand" to continue making preparations for the change. She also requested that SIFMA and ICI build on the white paper schedule and provide the SEC staff in the division of trading and markets with a more detailed implementation schedule by Dec. 18.
She noted the need to ensure regulatory changes are made in time to implement the change and specifically mentioned the role of self-regulatory organizations in that process.
"I have directed the commission staff to work closely with the SROs to develop detailed schedules to consider the necessary rule amendments," White wrote, adding she requested the schedules be finalized by Oct. 31. "These schedules, combined with your more detailed schedule, will provide the SEC the necessary insight required to monitor progress and take any additional steps necessary to keep this effort on track for a 2017 implementation."
White also said she has instructed commission staff to develop a proposal to amend SEC Rule 15c6-1(a), on the settlement cycle, to require settlement no later than two days after trading.
ICI said in a statement it appreciates White's leadership and support for the move and looks forward to working with her, SEC staff, and other market participants to achieve the "much needed goal."
