MSRB shortens settlement cycle to one day

The Municipal Securities Rulemaking Board has received approval from the Securities and Exchange Commission to shorten the settlement cycle to one business day, following the adoption of amendments to Rules G-12 on uniform practices and G-15 on confirmation, clearance and settlement practices.

The amendments bring the MSRB Rules into line with recent amendments to SEC Rule 15c6-1, which set the settlement date for equities and corporate bonds as T+1. The compliance date for the MSRB rule amendments is May 28, 2024, the same day as the implementation date for the SEC rule amendments.

The Commission adopted its T+1-related amendments in February and the MSRB quickly followed with its own amendments to Rules G-12 and G-15 in March.

“Shortening the settlement cycle can reduce operational risks that can be present between trade and settlement date, which can promote investor protection and help reduce the risk of counterparty default and the capital required to mitigate this risk,” the MSRB said. “In support of these objectives and to promote regulatory consistency, the MSRB has consistently stated that the regular-way settlement cycle for municipal securities transactions in the secondary market should be consistent with that for equity and corporate bond transactions.”

Efforts to shorten the settlement cycle began in 1993, when the date was changed to T+3 from T+5 and remained unchanged until 2017, when it was updated to T+2. This particular effort to bring the settlement date to T+1 began in 2020.

“SIFMA, along with our industry partners ICI and DTCC, began the process of shortening the settlement cycle in 2020, much like we did with the move to T+2 in 2017,”  said Leslie Norwood, managing director and associate general counsel at the Securities Industry and Financial Markets Association. “The effort, while a significant undertaking, will yield significant benefits in reducing risk in the system. We appreciate the MSRB’s adoption of the amendments needed to accelerate the settlement cycle, and we encourage all market participants to make use of SIFMA’s T+1 Securities Settlement Implementation Playbook and our forthcoming training video as tools to prepare for the implementation date of May 28, 2024.”

In analysis of its own proposal for equities and corporate bond markets, the SEC estimates that the cost of system updates to comply with the rule changes would be $874,000 per firm for dealers serving institutional investors only and $1.276 million per firm for dealers who also serve retail investors. Select dealers may also elect to use a third-party clearing firm if the cost for outsourcing is lower than the cost of the SEC estimates, the MSRB said.

“As expected, the rule changes announced yesterday will align MSRB rules with the changes the SEC has adopted to implement T+1 clearing and settlement,” said Michael Decker, senior vice president for research and public policy at the Bond Dealers of America. “The industry is hard at work implementing the transition to T+1, and the changes to Rules G-12 and G-15 will accommodate that activity.”

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