In May of 2024, the SEC switched from a T+2 settlement cycle to T+1. The SEC received petitions in 2025 and 2026 asking it to consider shortening the cycle further to T+0.
According to the SEC, the T+1 rule requires payment and delivery occurring no later than the first business day after the trade date. This means that successful trades (buy or sell) must be settled by the next day (weekends excluded). Current settlement cycles affect most broker-dealer securities transactions.
Large brokerages and tier-1 institutions had the economic means and personnel to adopt the T+1 settlement cycle in stride. However, small and mid-sized brokerages and RIAs dependent on manual systems and leaner teams faced additional compliance and operational pressure with the shorter settlement cycle.
Some of the challenges this change presented to smaller and mid-sized firms include:
- Funding
- Third-party dependence
- Smaller correction windows
- Resource strain
While T+0 is not currently an SEC requirement, a July 2026 petition requesting that the SEC consider moving toward essentially same-day settlement demonstrates that the settlement cycle remains an area to watch. Firms that begin reviewing their processes now will be better positioned to respond if the SEC takes further action.
Should the SEC tighten the settlement cycle window to T+0, smaller firms may face certain challenges, which could include these three areas of regulatory requirements:
- Client Fund Allocation: In a T+0 environment, firms would have significantly less time to allocate trades, making timely and accurate allocation procedures even more important.
- Best Execution and monitoring: A framework must be in place to justify that an action was taken in the best interest of the client.
- Error correction and trade reversal costs: A T+0 settlement cycle leaves little room to identify and fix an error, potentially resulting in a trade reversal and the further regulatory obligations that come with it.
Best Practices to Consider for T+0 and Other Protective Measures for Smaller Firms
- Review trade allocation and approval procedures
Firms should review how trades are allocated, and confirmed and affirmed, and move away from manual processes that can cause delays.
- Strengthen best execution and trade monitoring
A shorter settlement window means less time to identify and correct problems. Firms should confirm that their best execution policies and procedures are current and that trade monitoring provides a clear record of how execution decisions were made. Any exceptions or unusual circumstances should be documented promptly.
- Review funding and liquidity procedures
T+0 would leave little room to resolve funding problems after a trade is executed. Firms should understand when funds and securities must be available, who is responsible for funding the transaction, and how funding deficiencies will be identified and escalated.
- Evaluate third-party and technology dependencies
Smaller firms will depend heavily on third-party service providers such as custodians, and trading platforms. It is critical that all service agreements, communication procedures and contingency plans for unforeseen situations or errors are thoroughly reviewed.
- Update policies, procedures and recordkeeping
Under the current T+1 framework, RIAs are required to maintain records of certain confirmations, allocations and affirmations, including date and time stamps. A move to T+0 would make accurate and timely recordkeeping that reflects what the firm does even more important.
Smaller and mid-sized firms already face regulatory strain from meeting the requirements of the recently implemented T+1 settlement cycle. By taking steps now to address gaps in processes, move away from manual procedures, review third-party agreements, and generally tighten internal controls, firms can meet further regulatory constraints should the settlement cycle shorten further to T+0.
For assistance in reviewing and updating your current settlement practices, please contact us at 619.298.2880 or email [email protected].
