OCC/FDIC rule on securities transaction settlement effective Oct. 1

A final rule conforming banking rules with a securities industry move last year to a two-day standard settlement cycle for securities transactions goes into effect Oct. 1. The rule is slated for publication Thursday in the Federal Register.

Issued June 1 by the Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corp. (FDIC), the final rule aligns rules of the three federal bank regulators, including the Federal Reserve. It requires banks to settle most securities transactions within the number of business days in the standard settlement cycle followed by registered broker dealers in the United States unless otherwise agreed to by the parties at the time of the transaction. The aim of the rule is to reduce settlement exposure and align settlement practices across all market participants.

The U.S. securities industry last Sept. 5 transitioned from a standard securities settlement cycle of three business days after the date of the contract, commonly known as T+3, to a two-business-day standard, or T+2. OCC and FDIC issued guidance in advance to banking institutions last year that they should comply with the change.

The OCC and FDIC reiterated in the final rule notice their understanding that, “consistent with the industry’s transition to T+2, banks are already in compliance with a two-day settlement standard as a practical matter.”

Joint Final Rule: Securities Transaction Settlement Cycle