At L.M. Kohn, our mission requires that we stay ahead of the latest developments that could have an impact on our industry. Recently, one such change to the rules affecting securities transactions, including stocks, bonds, municipal securities, exchange-traded funds and certain mutual funds, has taken place.

The New T+1 Settlement Cycle

On May 28, the Securities and Exchange Commission’s new rule amendments affecting the standard settlement cycle for most broker-dealer transactions went into effect. Referred to as “T+1,” the new rule shortens the time between the transaction date and the settlement date from two days to one. This means that if a client buys shares of a stock on Wednesday, the money must arrive in the seller’s account by Thursday.

Who does this impact?

Truthfully, the impact to the end client isn’t too significant. For years, many brokers (including L.M. Kohn) have required an adequate cash balance in the client’s account before a trade will even go through. Additionally, most securities these days are held digitally, not in physical certificates. Both of these elements enable the required faster transaction times.

Where the new rule has the most implications is on a firm’s back-office processes. The time required to verify that all the details are correct and process each trade has essentially been halved. For small firms with limited resources, this could cause some strain.

How we are helping

L.M. Kohn has spent years refining our internal processes to ensure they are as streamlined and efficient as possible. We’ve incorporated the latest technology to automate as many formerly manual processes as possible. For the past six months, we’ve prepared our reps for the coming change with tips on how to be more efficient on the back end. We’ve done our due diligence, conducting deep research on the potential impacts and pulling reports on reps’ clients to ensure each one has an ACH on file that ensures fast transfers.

For clients, especially those without any physical certificates in their portfolio, the new T+1 Settlement Cycle has arrived almost unnoticed. But small firms need to ensure that they have the ability to work quickly, verifying the accuracy of each trade and correcting any mistakes made. If you’re part of a small firm in need of the back-office support to maintain compliance with the new T+1 Settlement Cycle, please contact us.