Reminder – T-1 Settlement Starts Today, Tuesday, May 28, 2024

By Daniel T. Kajunski, Allyson Wilkinson

Starting today, Tuesday, May 28, 2024, the amendments to Securities Exchange Act Rule 15c6-1 take effect, shortening the settlement cycle for most broker-dealer securities transactions to the trade date plus one business day (T+1) from the trade date plus two business days (T+2).

The T+1 settlement cycle applies to transactions for stocks, bonds, municipal securities, exchange-traded funds, certain mutual funds, and limited partnerships that trade on an exchange. The amendments also shorten the settlement cycle for firm commitment underwritten offerings for securities that are priced after 4:30 p.m. (Eastern time) to T+2 from trade date plus four business days (T+4). Rule 15c6-1, however, will continue to allow parties to agree to a longer settlement cycle in the case of firm commitment underwritten offerings.

While the T+1 settlement cycle is meant to increase market efficiency and reduce settlement risk for investors and market participants, the shortened settlement period poses operational challenges for many issuers. To mitigate the risk of failed settlements and compliance issues, issuers should continue to:

  • Monitor closely their procedures for clearing trades in the issuer’s securities with its transfer agent, outside counsel, and broker-dealers, including (i) establishing clear roles and responsibilities with custodians, clearing firms, and financial institutions to facilitate smooth transaction execution and (ii) evaluating current tax withholding procedures for employee equity awards to ensure regulatory compliance and accurate tax reporting.
  • Add additional planning in offerings with counsel and other advisors to ensure an offering will close within the shorter settlement cycle and, if needed, agree to a longer settlement cycle before conducting a firm commitment underwritten offering.

If you have questions about the changes, please contact the authors of this alert or your regular counsel at Mintz.

 

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    Daniel T. Kajunski

    Member

    Dan is a corporate and securities attorney whose practice spans the full gamut of corporate law. He has advised clients for over two decades in public and private equity and debt financings, securities law matters, mergers and acquisitions, and strategic advice on a broad range of other corporate matters. He capably counsels public and private companies with offerings, compliance, and securities questions and leads buyers and sellers throughout the transaction process. Dan represents life sciences companies as well as clients in other technology fields, financial services, and professional services firms.

    Allyson Wilkinson

    Associate

    Allyson Wilkinson is an Associate at Mintz who leverages her in-house experience to provide holistic counsel to publicly traded and late-stage private companies on corporate and securities law matters. She represents issuers in IPOs, follow-on offerings, PIPEs, registered direct offerings, and mergers and acquisitions. Her practice also includes advising companies on governance, stock exchange requirements, and proxy advisory firm policies.