T+2 Settlement Cycle for Transactions in Municipal Securities

As summarized below, the MSRB recently announced the effective date of amendments to MSRB Rules G-12, on uniform practice, and G-15, on confirmation, clearance, settlement and other uniform practice requirements with respect to transactions with customers, to define regular-way settlement for municipal securities transactions as occurring on a two-day settlement cycle (T+2). The SEC approved the MSRB’s proposal to make these rule amendments and other technical amendments in April 2016 and the effective date will be September 5, 2017.

The MSRB expects the migration to the two-day settlement cycle to provide significant benefits to the financial industry, including the mitigation of counterparty risk, a decrease in margin requirements for members of the NSCC, a reduction in pro-cyclical margin and liquidity demands especially during periods of market volatility, and an increase in global settlement harmonization by aligning the U.S. markets with other major markets, such as the European Union.

In the MSRB’s rule filing and at the time of SEC approval, the MSRB stated that it would announce the compliance date of the amendments in a notice to be published on the MSRB website, which date would correspond with the broader industry transition to a T+2 regular-way settlement, dependent upon the SEC making corresponding amendments to Exchange Act Rule15c6-1(a), which, at the time, defined regular-way settlement as occurring three business days after the trade date (“T+3”) for equities and corporate bonds.

On March 22, 2017, the SEC adopted amendments to Exchange Act Rule 15c6-1(a) to shorten the standard settlement cycle for most broker-dealer transactions from T+3 to T+2, and established a compliance date of September 5, 2017, consistent with a voluntary industry proposal.

Accordingly, the effective date of the MSRB’s related amendments to Rules G-12 and G-15 will also be September 5, 2017.

For further information, please refer to MSRB Regulatory Notice 2017-07.

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