New SEC rules will create significant new operational demands for asset managers.

The SEC has adopted rule changes that will shorten the standard settlement cycle for US stocks from two days (T+2) to T+1. The reforms come as the US regulator seeks to reduce the various credit, market and liquidity risks highlighted in changed dealing volumes over the last five years.

According to SEC Chair Gary Gensler, the new rulemaking is intended to reduce latency, lower risk, promote efficiency, and more liquidity in the equity markets. The SEC also says it wanted to improve the processing of institutional trades, including those from hedge funds and ETFs.

The rules will require broker-dealers to either enter into written agreements or establish, maintain, and enforce written policies and procedures, which should be reasonably designed to ensure the completion of allocations, confirmations and affirmations “as soon as technologically practicable” and no later than the end of the trade date.

The changes come as the SEC seeks to make the clearing of US securities more robust than previously.

Here are our Truss Edge takeaways for market participants:

  • These rules will ultimately be beneficial for the market – they can reduce settlement errors and the costs of these errors, which can impact the performance of funds;
  • The changes mean that investment firms will need to automate their trade processes to ensure that trades are captured in a timely and accurate manner, as specified by the regulator;
  • Fund managers have relied on manual processes that can manage T+1 trading and settlement activity. Still, the new rules will require that the whole market receives information recorded on the trade date – this will require automation and efficient process flows such as straight-through processing (STP) between organisations and applications.

“Some of the demands being made now by the SEC reflect operational realities in today’s market which asset managers will need to address,” explained Dave Shastri, Chief Strategist at Truss Edge. “They raise the bar potentially well beyond the each of firms that have previously relied on manual processes.”

How can Truss Edge help?

Truss Edge works closely with fund managers to help them achieve their operational goals regarding STP and full automation of mission-critical internal processes. We support fund managers in migrating from manual processes that might have historically been based on spreadsheets to tailored solutions that integrate seamlessly with the service providers, data vendors and other parties.

Truss Edge technology has been designed to support large ETF fund management operations and is consequently able to meet the most demanding real-time reporting environments for asset managers. Behind our technology also sits an extremely experienced team with decades of market experience who can advise on the best solutions for fund managers of all sizes.

Scroll to Top