The Securities and Exchange Commission on Wednesday adopted a rule accelerating the turnaround time for stock trades to one day in an effort to reduce the chance of another meme stock meltdown, when frenzied trading caused the share prices of certain stocks such as GameStop to plummet and several broker-dealers such as Robinhood to halt trading. 

Wall Street’s top securities cop also proposed changes to investment advisor custody rules in a move designed to prevent future cryptocurrency losses.

Commissioners voted 3-2 to shorten the time between when a securities order is placed and when a trade is executed to lessen the kind of "systemic risk" underscored by the GameStop melee, SEC Chair Gary Gensler said.

“I support this rulemaking because it will reduce latency, lower risk, and promote efficiency as well as greater liquidity in the markets,” Gensler added.

Trade groups welcomed the commission's proposal to cut the settlement cycle to a single business day from two, after reducing the settlement time from three days six years ago, but generally balked at the May 28, 2024 effective date of the new rule.

“The Investment Adviser Association supports the SEC’s decision today to finalize rules to shorten the standard settlement cycle, but we have some concerns with how the final rules will affect investment advisers and the markets,” Gail Bernstein, IAA’s general counsel said.

“We are disappointed that the SEC did not accept the widely-made request, including by the IAA, to delay the settlement cycle compliance date until September 3, 2024. This would have aligned the U.S. change with Canada’s move to T+1, and in our view would have provided adequate time for the industry to make the changes necessary to come into compliance. We remain hopeful that the SEC will nevertheless extend this date,” Bernstein added.
“We appreciate the commission finalizing its rule to provide certainty, but we strongly disagree with the implementation date of May 2024,” said Kenneth Bentsen, head of Sifma, the securities industry group.

Commissioner Hester Peirce, who along with Commissioner Mary Uyeda voted against the rule, said she supports “the plan to move to T+1, but do not support the proposed timeline for making this change. Shortening the settlement cycle is a way to remove some risk from our markets. Mandating that the change occur in May 2024, however, could pose risks of its own by forcing the transition before market participants are ready. I propose instead a September 3, 2024 implementation date.”

In addition, the SEC proposed toughening safeguards around investors’ assets after the collapse of several high-profile crypto companies last year revealed that customer funds were not as safe as had been advertised—a fact not discovered until crypto companies like Voyager, Luna and FTX crashed into bankruptcy.

The change in advisor custody rules would require investment advisors to secure all the client assets that they manage including so-called alternatives, such as cryptocurrencies and art, with qualified custodians. 

The trade group “is pleased to see that the SEC accepted our recommendation to allow advisers to rely on third parties to satisfy these new obligations” which require advisors  to make and keep certain trading records, Bernstein said.

But she also called today’s proposal “a major departure from how the rule will treat an adviser’s discretionary advice and will subject all of an adviser’s authorized trading on behalf of its clients to the new rule. This narrows even further a position the SEC staff has taken over the past few years applying the custody rule differently based on how a transaction settles. 

“This is an issue the IAA advocated on and we’re reviewing the release to assess the implications of the proposed changes,” Bernstein said.