May 20, 2024

Beginning May 28, 2024, the standard settlement cycle for most broker-dealer securities transactions will be one business day (T+1) following a trade instead of two business days (T+2), which has been the standard since 2017. The amendment to Securities Exchange Act Rule 15c6-1, the rule governing standard settlement cycle, reflects improvements in technology that allow trades to settle more quickly but will put additional timing pressure on market participants.

As a practical matter, the shift to T+1 means that parties to a transaction should take steps to ensure that all necessary documentation is finalized prior to the trade, since parties will no longer have the benefit of the longer settlement cycle to assemble documentation. This is particularly important with respect to any documents outside of the control of the company and its counsel, such as in the case of share de-legending opinions, share transfer and medallion guarantee processes, “wet ink” signatures on stock powers, and KYC documentation (particularly where there are many selling shareholders).

Note that Rule 15c6-1 continues to allow parties to agree to a longer settlement cycle in the case of firm commitment underwritten offerings; although, traditionally, this exception has been used for certain debt capital markets transactions rather than equity or equity-linked transactions. Additionally, transactions that price after 4:30 p.m. ET may settle on a T+2 timeframe even in the absence of an agreement between the parties at the time of the transaction. However, as a practical matter, the majority of equity transactions, including IPOs and follow-on offerings, will close one day after trading begins.

Companies planning an offering should assess any such time-intensive requirements early in the transaction and ensure that necessary processes begin as early as possible to avoid a failed trade settlement.

For any questions or more information on these or any related matters, please contact your regular Wilson Sonsini Goodrich & Rosati contact or any member of the firm’s capital markets practice.