WASHINGTON – Federal agencies last week proposed a new rule to shorten the settlement cycle for securities sales, which could save broker-dealers and financial institutions millions.
The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. issued a joint proposal that would reduce the standard settlement cycle for securities purchased or sold by national banks, federal savings associations and FDIC-backed institutions to two days from the current three-day cycle.
The regulators estimate the shorter settlement cycle could result in reduced operational costs and risk, subsequently improving efficiency of capital utilization for broker-dealers and financial institutions, according to the proposed rule.
“A shorter settlement cycle will directly reduce banks’ counterparty settlement risk and reduce systemic risk,” according to the agencies.
A 2012 study estimated the shortened time could save broker-dealers and financial institutions $55 million and $40 million, respectively, over a three-year period.
The study said covered institutions that transact securities but do not manage securities transactions could realize about $30 million in cost savings during that time. Although smaller-market participants wouldn’t likely realize such savings.
The proposed rule would also likely come up with an upfront cost to conform to the new rule, according to the study.
The full proposed rule change would apply to trades placed on or after Sept. 5.
Eli Sherman is a PBN staff writer. Email him at Sherman@PBN.com, or follow him on Twitter @Eli_Sherman.
