On June 1, 2018, the OCC and FDIC issued a final rule shortening the settlement cycle for securities transactions effected by OCC- and FDIC-regulated institutions.  Under the final rule, all such banks will be required to adhere to the standard industry settlement cycle, which currently requires trades to be settled no later than the second business day after the trade date (T+2).

As of September 5, 2017, non-bank market participants in the United States have been subject to a T+2 settlement cycle under SEC, MSRB, FINRA, NYSE, NASDAQ, Options Clearing Corporation, and DTCC rules.  The OCC’s and FDIC’s rules, however, had permitted banks under those agencies’ jurisdiction to settle securities on a T+3 basis, which was the prior market convention.  (By contrast, the Federal Reserve’s corresponding regulation for state member banks incorporates the market-standard settlement cycle.)

To address this potential fragmentation, in the summer of 2017 the OCC and FDIC issued guidance indicating that banks should be prepared to settle securities transactions on a T+2 basis.  In September 2017, the agencies followed their guidance by proposing changes to their rules to require settlement no later than the second business day following the date of the trade, unless otherwise agreed to by the parties at the time of the transaction.

The final rule, however, requires OCC- and FDIC-regulated institutions to settle securities transactions no later than the number of business days in the standard settlement cycle followed by registered broker-dealers in the United States following the date of the trade, unless otherwise agreed to by the parties at the time of the transaction.  Under the final rule, the length of the standard settlement cycle is determined by reference to SEC Rule 15c6-1.

The change to a cross-reference approach in the final rule is notable because it means that if and when the SEC amends Rule 15c6-1 to require T+1 settlement in the future, the OCC and FDIC would not need to amend their regulations further to require T+1 settlement.  Instead, OCC- and FDIC-regulated banks would be subject to the T+1 settlement requirement automatically.

The final rule will be effective as of the first day of the calendar quarter beginning at least 30 days following the rule’s publication in the Federal Register, which is expected to be October 1, 2018.

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Photo of Randy Benjenk Randy Benjenk

Randy Benjenk is a partner in Covington’s industry-leading Financial Services Group and focuses his practice on regulatory advice and advocacy. He represents domestic and foreign banks, fintech companies, and trade associations on compliance issues, corporate transactions, and public policy matters.

Chambers USA says…

Randy Benjenk is a partner in Covington’s industry-leading Financial Services Group and focuses his practice on regulatory advice and advocacy. He represents domestic and foreign banks, fintech companies, and trade associations on compliance issues, corporate transactions, and public policy matters.

Chambers USA says Randy has received “widespread praise” from clients, who describe him as “excellent” and say that “the quality of his legal work and his writing abilities were incredible” and “he’s very easy to work with, knowledgeable and efficient.”

Randy regularly advises clients on a wide range of regulatory matters, including:

  • Bank Activities and Prudential Regulation. Complex bank activities, structure, licensing, and prudential matters, often involving issues of first impression at the federal and state banking agencies.
  • Corporate Transactions. Mergers and acquisitions, spinoffs, charter conversions, debt and equity issuances, investments, strategic partnerships, de novo bank formations, and related regulatory applications and disclosures.
  • Private Equity Investments. Private equity investments in banks, bank investments in private funds, and fund structuring related to the Volcker Rule and Bank Holding Company Act.
  • Public Policy Matters. Regulatory and legislative policy matters, with an emphasis on changes arising out of U.S. banking legislation and international standards.
  • Crisis Response. Navigating extraordinary events, such as the COVID-19 pandemic and related governmental responses, and firm-specific matters.
  • Supervisory and Enforcement Matters. Compliance and safety and soundness issues that arise in the examination and enforcement contexts.