SEC adopts rule changes to reduce risks, proposes two other rules

The SEC finalized a set of rule changes to shorten the standard settlement cycle for most broker-dealer transactions in securities, reducing the cycle from two business days after the trade date to one.

The SEC also proposed rule changes that would:

• Enhance protections of customer assets managed by registered investment advisers; and
• Revise the commission’s regulations under the Privacy Act.

Adopted rule: Reducing Risk in Clearance and Settlement

In addition to shortening the standard settlement cycle, the final rules are intended to improve the processing of institutional trades, an SEC release said. The rules add a new requirement to facilitate straight-through processing, which applies to certain types of clearing agencies that provide central matching services.

“I support this rulemaking because it will reduce latency, lower risk, and promote efficiency as well as greater liquidity in the markets. … Taken together, these amendments will make our market plumbing more resilient, timely, orderly, and efficient,” said SEC Chair Gary Gensler.

The final rules will become effective 60 days after publication in the Federal Register. The compliance date for the final rules is May 28, 2024.

Proposed rule: Safeguarding Advisory Client Assets

The SEC proposed rule changes to enhance protections of customer assets managed by registered investment advisers. If adopted, the changes would amend and redesignate Rule 206(4)-2, the commission’s custody rule, under the Investment Advisers Act of 1940 and amend certain related recordkeeping and reporting obligations.

“I support this proposal because, in using important authorities Congress granted us after the financial crisis, it would help ensure that advisers don’t inappropriately use, lose, or abuse investors’ assets. … In particular, Congress gave us authority to expand the advisers’ custody rule to apply to all assets, not just funds or securities,” Gensler said.

The comment period on the proposal will remain open for 60 days following publication of the proposing release in the Federal Register.

Proposed rule: Revision to Privacy Act Rule

The SEC proposed a rule that would revise the commission’s regulations under the Privacy Act, which is the principal law governing the handling of personal information in the federal government. The revisions are intended to clarify, update, and streamline the language of several procedural provisions.

“I am pleased to support this proposal because, if adopted, it would broadly update our Privacy Act rules to account for modern technology, as well as provide the public with greater transparency into the commission’s use of this data. These amendments would provide more clarity on how the public can access their records maintained by the commission and request amendments,” Gensler said.

The comment period on the proposal will remain open for 60 days following publication of the proposing release in the Federal Register.

— To comment on this article or to suggest an idea for another article, contact Kevin Brewer at Kevin.Brewer@aicpa-cima.com.