October 14, 2019

October 14, 2019

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SEC Adopts Amendment to Shorten Settlement Cycle for Securities Transactions

On March 22, the Securities and Exchange Commission adopted an amendment to Rule 15c6-1(a) that shortens the standard settlement cycle for most broker-dealer securities transactions from three business days (known as T+3) to two business days (or T+2). Specifically, the rule, as amended, would prohibit a broker-dealer from entering into a contract for or effecting the purchase or sale of securities in which payment for and delivery of the securities occurs later than T+2, unless the parties agree otherwise at the time of the transaction or the transaction involves exempted securities or other securities to which Rule 15c6-1(a) does not apply (e.g., government securities and commercial paper). Bolstered by technological improvements that support a shorter settlement cycle, the amended rule is intended to decrease counterparty default risk, market risk, liquidity risk, credit risk and overall systemic risk and reduce inefficiencies in the movement of capital from investors to companies. Investors and broker-dealers must comply with the amended rule starting on September 5.

In a statement about the amendment, SEC Commissioner Kara Stein indicated that the staff will prepare a report, by no later than September 5, 2020, on the changes resulting from the movement to a T+2 settlement cycle and make recommendations for further improvements.

To assist in the preparation for the implementation of a T+2 settlement cycle, interested persons may submit inquiries to SEC staff at T2settlement@sec.gov.

Many outstanding warrants, convertible notes and similar instruments permit settlement based on the T+3 standard. Investors who rely on warrants and other convertible securities to settle trades would be well-served to evaluate the implications of the shorter settlement period on this strategy, including how to address the reduced settlement period, if any, for securities they already hold.

The full text of the press release is available here and the adopting release is available here. Commissioner Stein’s statement about the amendment is available here.

©2019 Katten Muchin Rosenman LLP

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Associate

Alyse Sagalchik concentrates her practice on corporate matters, with an emphasis on mergers and acquisitions, joint ventures, private equity and securities transactions. Alyse also advises companies on a broad range of general corporate, federal securities laws and corporate governance matters, including Securities Exchange Act of 1934 reporting and disclosure matters. She has represented strategic and financial buyers and sellers in M&A transactions ranging in value from $10 million to more than $15 billion and spanning a wide variety of industries, including health...

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James M. Brady, Katten Muchin Law Firm, Finance Attorney
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James Brady concentrates his practice in financial services matters.

While in law school, James was an editor of the Michigan Journal of International Law. He also served as a judicial intern to the Honorable Stephen J. Markman of the Michigan Supreme Court. http://www.kattenlaw.com/James-Brady

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Mark Reyes Securities Lawyer Katten Muchin law firm Chicago office
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Mark J. Reyes concentrates his practice in corporate and securities matters, including representing issuers and investors in public offerings and private placements of equity and debt securities and advising clients in complex corporate transactions such as mergers, acquisitions, private investments in public equity (PIPEs), private equity investments and joint ventures. He also counsels public companies on securities law compliance, disclosures and corporate governance matters.

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Mark D. Wood, corporate securities lawyer Katten Muchin Chicago Law firm
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Mark D. Wood is head of Katten's Securities practice and concentrates in corporate and securities law. Mark represents public companies, issuers and investment banks in initial public offerings (IPOs) and other public offerings, private investment in public equity (PIPE) transactions, debt securities and other securities matters.

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Janet M. Angstadt, Securities, Financial Services, Chicago, Lawyer, Katten Law FIrm
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Janet M. Angstadt is the head of Katten's Chicago Financial Services practice. She focuses her practice on broker-dealer and exchange compliance issues and advises companies on matters regarding compliance with the regulations of the US Securities and Exchange Commission (SEC) and self-regulatory organizations (SROs).

Janet represents clients in a wide range of legal and regulatory matters, including mergers and acquisitions, SRO investigations, compliance issues related to registrations, sales practice, short sales, Regulation NMS, market-making and...

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