The U.S. securities trading settlement cycle will shorten from T+3 to T+2 (the trade date plus two business days) beginning on September 5, 2017. For cross-border consistency, the Canadian market is expected to adopt a T+2 settlement cycle on the same date. Financial markets participants in both jurisdictions have prepared extensively and are generally supportive of a shorter settlement cycle in light of global market practices as well as technological advancements in trading and the potential to reduce risk and increase liquidity. The SEC has also undertaken to consider and report within three years on a possible move to an even shorter settlement cycle.
Impact on Underwritten Public Offerings
SEC rule changes adopted on March 22, 2017 will make T+2 instead of T+3 the default settlement period for most U.S. broker-dealer transactions, including sales of equity securities, corporate bonds and investment trust units (but not government securities or commercial paper). However, certain existing exemptions will still be available.
Firm commitment underwritten offerings that are registered under the Securities Act of 1933 and priced after 4:30 p.m. EST will still be exempt from a T+2 settlement. U.S. market practice may nonetheless shift so that these offerings settle earlier than T+4.
The SEC rules will still permit parties to expressly agree to a longer settlement period. Cross-border U.S.-Canada public offerings may continue to settle on T+4 or T+5, consistent with current practice. This longer settlement period reflects the fact that under Canadian law, investors have two business days from receiving a final prospectus to withdraw from the transaction. Accordingly, transactions do not close until after the expiry of the withdrawal period. While the move to T+2 will not require a change in current market practice for Canadian or cross-border public offerings, it may result in a greater proportion of such offerings accelerating settlement to T+4.
To discuss these issues, please contact the author(s).
This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.
For permission to republish this or any other publication, contact Janelle Weed.
© 2021 by Torys LLP.
All rights reserved.