A few weeks ago, the SEC finalized rules to shorten the standard settlement period for securities transactions from three business days (T+3) to two business days (T+2). Amended Exchange Act Rule 15c6-1(a) will prohibit a broker-dealer from entering into a contract for the purchase or sale of a security (subject to certain exceptions) that provides for payment of funds and delivery of securities later than two business days after the trade date (known as “T”), unless otherwise expressly agreed to by the parties at the time of the transaction. (See this Doug’s Note.)
The shift from T+3 to T+2 will be effective on September 5, 2017 to give everyone sufficient time to plan for, implement and test changes to the various systems, policies and procedures necessary for an orderly transition. Most of this preparation burden will, of course, fall on the direct participants in the securities trading industry. However, any company that pays regular cash dividends may need to adjust its annual compliance calendar to accommodate the new rule.
Most companies that pay regular cash dividends include these relevant dates in their annual compliance calendars:
- The date on which the dividend is expected to be declared by the board of directors,
- The dividend payment date, and
- The ex-dividend date (the date set by the stock exchanges on which the security’s purchase price no longer reflects the dividend because the trade will settle after the record date).
NYSE and NASDAQ rules currently state that shares will trade ex-dividend two business days prior to the dividend record date, which makes sense under the current T+3 timeline. However, the exchanges have now amended their rules so that, effective September 5th, shares will trade ex-dividend one business day prior to the record date, which is consistent with the upcoming shift to T+2.
It is not too soon to adjust compliance calendars to reflect this change for post-September 5th dividends so that:
- Companies can accurately predict and track the customary drop in stock price on the ex-dividend date (an amount roughly equal to the dividend payment), and
- Companies that include ex-dividend dates in their dividend press releases won’t forget to revise their date calculations to reflect this change.
All the best,