---------------------------------------------------------------------------

    The Commission also disagrees with the comment stating that the
prospective misalignment in settlement cycles may increase certain
risks, such as failed trades, accrual differences, net asset value
miscalculations, and investment guideline breaches. Market participants
will have many months to implement any operational requirements they
identify associated with the move to a T+1 settlement cycle, including
the operational requirements associated with the settlement of U.S.-
listed ETFs with baskets that include foreign securities and/or ADRs.
The industry has already identified many such requirements,\197\ and
the Commission believes that market participants will have sufficient
time to complete the operational changes necessary to minimize these
risks. Moreover, as explained above,\198\ the Commission believes that
shortening the settlement cycle will reduce certain risks for market
participants overall (e.g., credit, market and liquidity risk),
including these risks faced by APs.
---------------------------------------------------------------------------

    \197\ See T+1 Playbook, supra note 134, at 33 (providing
recommendations to improve timing in nightly batch cycles, make use
of lines of credit to address the potential need for more
collateral, and establishing connections for real-time messaging
with NSCC).
    \198\ See supra note 139 and accompanying text.
---------------------------------------------------------------------------

    The Commission also does not believe that it is necessary at this
time to amend the text of paragraph (b) of Rule 15c6-1 to codify the
existing exemptive order for securities that do not have facilities for
transfer or delivery in the U.S., or the existing exemptive order for
certain insurance products. As noted above, one commenter recommended
that the existing exemptions ``either be codified in Rule 15c6-1(b), or
the Commission issue a new order to replace the orders issued in 1995
to facilitate access to the terms of the exemptions and to facilitate
compliance with their terms.'' \199\
---------------------------------------------------------------------------

    \199\ See supra note 128 and accompanying text.
---------------------------------------------------------------------------

    Since these orders were first issued in 1995, both orders have
provided adequate regulatory relief to market participants who engage
in transactions that the orders were intended to cover. Codifying the
exemptions is not necessary to facilitate the transition to a T+1
settlement cycle, and the Commission is aware of no evidence that
market participants lack knowledge of the terms of the exemptive orders
or have been unable to comply with the orders because they have not
been codified in Rule 15c6-1.

III. Exchange Act Rule 15c6-2--Same-Day Affirmation

A. Proposed Rule 15c6-2

    The Commission proposed Rule 15c6-2 to require that, where parties
have agreed to engage in an allocation, confirmation, or affirmation
process, a broker or dealer would be prohibited from effecting or
entering into a contract for the purchase or sale of a security (other
than an exempted security, a government security, a municipal security,
commercial paper, bankers' acceptances, or commercial bills) on behalf
of a customer unless such broker or dealer has entered into a written
agreement with the customer that requires the allocation, confirmation,
affirmation, or any combination thereof, be completed as soon as
technologically practicable and no later than the end of the day on
trade date in such form as may be necessary to achieve settlement in
compliance with Rule 15c6-1(a).\200\
---------------------------------------------------------------------------

    \200\ See T+1 Proposing Release, supra note 2, at 10453.
---------------------------------------------------------------------------

    In proposing Rule 15c6-2, the Commission did not define the terms
``allocation,'' ``confirmation,'' or ``affirmation,'' but explained
that trade allocation refers to the process by which an institutional
investor (often an investment adviser) allocates a large trade among
various client accounts or determines how to apportion securities
trades ordered contemporaneously on behalf of multiple funds or non-
fund clients.\201\ The T+1 Proposing Release also explained that the
terms ``confirmation'' and ``affirmation'' in proposed Rule 15c6-2
refer to the transmission of messages among broker-dealers,
institutional investors, and custodian banks to confirm the terms of a
trade executed for an institutional investor, a process necessary to
ensure the accuracy of the trade being settled. The Commission stated
its belief that these terms are widely used and generally understood by
market participants who engage in institutional trade processing.\202\
---------------------------------------------------------------------------

    \201\ Id.
    \202\ See id.
---------------------------------------------------------------------------

    In addition, in proposing Rule 15c6-2, the Commission used the term
``confirmation'' to refer to the operational message that includes
trade details provided by the broker-dealer to the customer to verify
trade information so that a trade can be prepared for settlement on the
timeline established in Rule 15c6-1(a), in contrast to the
confirmations required under Rule 10b-10, which concern a series of
disclosures that broker-dealers are required to provide in writing to
customers at or before completion of a transaction.\203\ The Commission
explained that the term ``confirmation,'' as used in proposed Rule
15c6-2, should be understood to refer to the institutional trade
processing message or verification and not the disclosure required
under Rule 10b-10.\204\
---------------------------------------------------------------------------

    \203\ See id. 10453-54.
    \204\ See id. 10454.
---------------------------------------------------------------------------

    The Commission also explained that the term ``customer,'' as used
in proposed Rule 15c6-2, includes any person or agent of such person
who opens a brokerage account at a broker-

dealer to effect an institutional trade or purchases or sells a
security for which the broker-dealer receives or will receive
compensation.\205\ The Commission stated that the term is intended to
cover both the institutional investor and any and all agents acting on
its behalf.\206\
---------------------------------------------------------------------------

    \205\ See id.
    \206\ See id.
---------------------------------------------------------------------------

B. Comments

1. Existing Commercial Incentives for Timely Trade Allocations,
Confirmations, and Affirmations
    Two commenters stated that the written agreements required under
proposed Rule 15c6-2 are unnecessary to improve same-day affirmation
rates because commercial incentives to achieve timely trade
allocations, confirmations, and affirmations already exist.\207\ One
commenter identified, for example, the following incentives for firms
to achieve on-time settlement: increased cost of settling a trade
without netting through the CCP; increased costs associated with the
processing of trades that are not affirmed; costs associated with buy-
ins for trades that are not settled on a timely basis; and the
potential for customer dissatisfaction related to the failure to timely
settle or the increased costs associated with such failure.\208\ The
second commenter stated that it is in an institutional customer's best
interest to timely allocate, confirm, and affirm its trades, as doing
so is the first step and a pre-condition to settling a trade.\209\ This
commenter also stated more generally that financial disincentives for
institutional customers that do not meet a same-day affirmation
timeline already exist.\210\
---------------------------------------------------------------------------

    \207\ See Fidelity Letter, supra note 16, at 3-4 (stating that
proposed Rule 15c6-2 is not necessary because ``market incentives
already exist to timely allocate, confirm, and affirm trades'');
letter from Tom Price, Managing Director, SIFMA (Aug. 26, 2022), at
2 (``SIFMA August 26th Letter'') (stating that written agreements,
as proposed by Rule 15c6-2, are unnecessary because ``there are many
commercial incentives in place for industry participants to meet
market standard settlement timelines'').
    \208\ See SIFMA August 26th Letter, supra note 207, at 2.
    \209\ See Fidelity Letter, supra note 16, at 3.
    \210\ See id.
---------------------------------------------------------------------------

2. Linking Settlement Instructions to Affirmation
    In the T+1 Proposing Release, the Commission stated that broker-
dealers are best positioned to ensure the timely settlement of
institutional trades and, as such, should be able to ensure via their
customer agreements that institutional customers or their agents also
adjust their operations to facilitate same-day affirmation.\211\ In
response to this statement, one commenter stated that settlement
requires client instruction through a client's agents, who are
typically custodians, against a broker-dealer's trades.\212\ The
commenter also stated that, because custodians often act as an agent
for institutional clients, custodians are highly dependent on the
implementation of efficient and timely operating models and processes
across market participants at the trading level, including
institutional clients and broker-dealers, before they can effect
settlement on their client's behalf.\213\ In this regard, the commenter
requested that the Commission consider requiring through Rule 15c6-2
the linking of settlement instructions to the affirmation.\214\
---------------------------------------------------------------------------

    \211\ See T+1 Proposing Release, supra note 2, at 10453.
    \212\ See AGC April Letter, supra note 16, at 3.
    \213\ See id.
    \214\ See id. at 2.
---------------------------------------------------------------------------

3. Definitions of Certain Terms
    In the T+1 Proposing Release, the Commission requested comment as
to whether the terms ``allocation,'' ``confirmation,'' ``affirmation,''
``end of the day on trade date,'' and ``customer'' should be defined
for purposes of Rule 15c6-2.\215\ In response, one commenter agreed
with the Commission's view, as articulated in the T+1 Proposing
Release, and expressed support for not defining these terms in the
rule.\216\ This commenter stated that, because operational and
technological processes and practices continually evolve across market
participants who engage in institutional trade processing, the above
terms are best grounded in the prevailing market practices and uses
understood by these market participants.\217\ A second commenter, in
contrast, stated that it would generally be helpful for the Commission
to provide definitions of terms within the context of the proposed
rule, even where such terms are commonly used in the industry.\218\ The
commenter recommended that the Commission define each of the above
terms for purposes of Rule 15c6-2 and suggested that the Commission
also define the term ``trade'' because there are multiple uses of this
term by the industry.\219\ The commenter further stated that the term
``affirmation'' is open to some interpretation and suggested that the
Commission define this term in particular.\220\
---------------------------------------------------------------------------

    \215\ See T+1 Proposing Release, supra note 2, at 10455.
    \216\ See letter from Matthew Stauffer, Managing Director and
Head of DTCC Institutional Trade Processing, DTCC ITP LLC (Apr. 11,
2022), at 3 (``DTCC ITP April Letter'').
    \217\ See id. (explaining that by not prescribing definitions
for the key terms used in proposed Rule 15c6-2, the Commission would
allow such terms to continue to evolve).
    \218\ See letter from Jim Kaye, Americas Regional Director, FIX
Trading Community (Apr. 11, 2022), at 2-3 (``FIX Trading Letter'').
    \219\ See id. The commenter provided suggested definitions for
the terms ``allocation,'' ``confirmation,'' and ``affirmation'' and
recommended that the term ``end of the day on trade date'' be
defined as a specific time of day together with its time zone. Id.
at 2.
    \220\ See id. at 2.
---------------------------------------------------------------------------

4. Use of Third Parties To Achieve Same-Day Affirmation
    One commenter requested that the Commission clarify whether, under
proposed Rule 15c6-2, an investment adviser that has entered into an
agreement with a broker-dealer pursuant to the proposed rule may rely
on a third party--such as a third party order management system, sub-
adviser, or custodian--to allocate or affirm trades.\221\ This
commenter, in a later letter, stated that ``upon further analysis, we
understand that requiring advisers to enter into specific contractual
arrangements would create significant challenges for advisers,'' and
recommended that the Commission replace the proposed requirement of a
written agreement with a requirement that investment advisers adopt and
implement policies and procedures reasonably designed to ensure that
allocations, confirmations, and affirmations are completed on a
timeline that allows settlement on T+1.\222\ As the commenter
explained, this approach would ``relieve investment advisers, when they
are parties to an allocation, confirmation, and affirmation process,
from the burden of negotiating and having to regularly update written
agreements,'' and ``create incentives for investment advisers to work
with broker-dealers and other third parties to complete the process in
a timely manner while allowing them greater flexibility to comply in a
manner best suited to their existing infrastructure, clients, and
resource levels.'' \223\
---------------------------------------------------------------------------

    \221\ See IAA April Letter, supra note 16, at 3-4.
    \222\ See letter from Gail C. Bernstein, General Counsel, and
William A. Nelson, Associate General Counsel, Investment Adviser
Association (Oct. 19, 2022), at 1-2 (``IAA October Letter'').
    \223\ Id.
---------------------------------------------------------------------------

5. Challenges Associated With Requiring Written Agreements in Support
of Increasing Same-Day Affirmations
    Although commenters generally supported the Commission's overall
goal of increasing same-day affirmations, several commenters expressed
a number of concerns with

the written agreement requirement in proposed Rule 15c6-2.\224\ First,
commenters stated that in many scenarios written agreements do not
currently exist between the parties to an institutional transaction and
would be highly burdensome to establish specifically for the purpose of
facilitating same-day affirmation. For example, two commenters
explained that agreements do not exist because the parties engage in
their transactions on a receive-versus-payment/deliver-versus-payment
(``RVP/DVP'') basis without an underlying agreement.\225\ In an RVP/DVP
transaction, securities are only delivered by the seller when payment
has been made by the buyer.
---------------------------------------------------------------------------

    \224\ See ASA Letter, supra note 16, at 2; Fidelity Letter,
supra note 16, at 3-4; IAA October Letter, supra note 222, at 1-3;
ICI Letter, supra note 16, at 5-7; ISITC Letter, supra note 29, at
2; MarketAxess Letter, supra note 29, at 2-3; SIFMA April Letter,
supra note 16, at 5-6; State Street Letter, supra note 16, at 4;
Virtu Financial Letter, supra note 16, at 3.
    \225\ See Fidelity Letter, supra note 16, at 4; SIFMA April
Letter, supra note 16, at 5.
---------------------------------------------------------------------------

    Some commenters explained that where written agreements do not
already exist, the parties would need to draft new agreements solely
for the purpose of compliance with the rule.\226\ In this regard,
commenters stated that, as proposed, Rule 15c6-2 would result in
burdensome, time consuming, and costly contract negotiations, as
broker-dealers would have to enter into a new or amended written
agreement with each of their institutional customers.\227\ Moreover,
another commenter stated that certain clients may not authorize their
investment advisers to enter into the type of written agreement
required under proposed Rule 15c6-2, while other clients may insist on
negotiating bespoke guideline requirements, such as arbitration or
governing law, into their written agreements.\228\ Multiple commenters
further expressed the view that the proposed written agreement
requirement would create unnecessary practical burdens and costs.\229\
Several of these commenters stated that it would be impracticable for
institutional customers to enter into such agreements because they
often rely on other parties to complete certain elements of the
allocation, confirmation, and affirmation process.\230\ One of these
commenters stated more generally that a requirement for broker-dealers
to enter into a written agreement with each of their institutional
customers is not practically feasible.\231\ One commenter also observed
that it is unclear under proposed Rule 15c6-2 whether broker-dealers
should be entering into the written agreements with the investment
advisers or with their customers.\232\
---------------------------------------------------------------------------

    \226\ See ISITC Letter, supra note 29, at 2; Fidelity Letter,
supra note 16, at 4.
    \227\ See ICI Letter, supra note 16, at 5-6; MarketAxess Letter,
supra note 29, at 2-3; SIFMA April Letter, supra note 16, at 5-6.
    \228\ See SIFMA April Letter, supra note 16, at 5.
    \229\ See ASA Letter, supra note 16, at 2; ICI Letter, supra
note 16, at 5; SIFMA April Letter, supra note 16, at 5; Virtu
Financial Letter, supra note 16, at 3.
    \230\ See ICI Letter, supra note 16, at 5; SIFMA April Letter,
supra note 16, at 5; Virtu Financial Letter, supra note 16, at 3.
    \231\ See ASA Letter, supra note 16, at 2.
    \232\ See SIFMA April Letter, supra note 16, at 5.
---------------------------------------------------------------------------

    Multiple commenters expressed a separate concern that proposed Rule
15c6-2 would expose a non-breaching broker-dealer to potential
liability if its customer, or customer's agent, breaches the written
agreement, even if through no fault of the broker-dealer.\233\ In
raising this concern, some commenters stated that the proposed rule
does not specify what should happen if the broker-dealer's customer or
its agent breaches the written agreement, which may put broker-dealers
in the difficult position of trying to regulate the conduct of their
customers through commercial contracts.\234\ Another commenter also
observed that the proposed rule would place the compliance burden on
broker-dealers, even though the customer--and not the broker-dealer--
has the necessary information to complete the allocation, confirmation,
and affirmation process.\235\ However, under proposed Rule 15c6-2, a
broker-dealer is only responsible for its own actions and not for the
actions of its customers or any other relevant parties to an
institutional transaction, as discussed further in Part III.C.
---------------------------------------------------------------------------

    \233\ See Fidelity Letter, supra note 16, at 4; MarketAxess
Letter, supra note 29, at 3; SIFMA April Letter, supra note 16, at
6; Virtu Financial Letter, supra note 16, at 3.
    \234\ See Fidelity Letter, supra note 16, at 4 (questioning
whether, under proposed Rule 15c6-2, a broker-dealer would be
subject to SEC enforcement if it failed to enforce private
contractual provisions with its customers regarding same-day
affirmation); MarketAxess Letter, supra note 29, at 3 (stating that
broker-dealers are not regulators and, as such, cannot force their
customers to upgrade their technology or processes to achieve same-
day affirmations).
    \235\ See SIFMA April Letter, supra note 16, at 6.
---------------------------------------------------------------------------

    Further, several commenters expressed the view that a written
agreement requirement, as proposed in Rule 15c6-2, would not be an
effective approach for achieving the Commission's overall goal of
increasing same-day affirmations.\236\ One commenter observed, for
example, that a written agreement requirement is unnecessary because
the industry recognizes the importance of same-day affirmations and is
actively working toward achieving same-day allocations, confirmations,
and affirmations.\237\ In this regard, some commenters recommended that
the Commission revise proposed Rule 15c6-2 to replace the written
agreement requirement with a requirement that broker-dealers establish
written policies and procedures reasonably designed to achieve same-day
affirmation.\238\ Some of these commenters further stated that such a
principles-based approach would relieve the parties to an institutional
transaction from the burden of negotiating a written agreement;
incentivize broker-dealers to work with their customers to complete the
allocation, confirmation, and affirmation process in a timely manner;
and afford broker-dealers more flexibility to comply with the rule in a
manner best suited to their specific business models, customer bases,
and products.\239\
---------------------------------------------------------------------------

    \236\ See ASA Letter, supra note 16, at 2; ICI Letter, supra
note 16, at 5; ISITC Letter, supra note 29, at 2; MarketAxess
Letter, supra note 29, at 3; SIFMA April Letter, supra note 16, at
5; State Street Letter, supra note 16, at 4.
    \237\ See ICI Letter, supra note 16, at 7.
    \238\ See ASA Letter, supra note 16, at 2; ICI Letter, supra
note 16, at 7; MarketAxess Letter, supra note 29, at 3; SIFMA April
Letter, supra note 16, at 6; State Street Letter, supra note 16, at
4; Virtu Financial Letter, supra note 16, at 3; see also IAA October
Letter, supra note 222, at 1-2; SIFMA August 26th Letter, supra note
207, at 2.
    \239\ See ICI Letter, supra note 16, at 7; MarketAxess Letter,
supra note 29, at 3; SIFMA April Letter, supra note 16, at 6; see
also IAA October Letter, supra note 222, at 2-3; SIFMA August 26th
Letter, supra note 207, at 2.
---------------------------------------------------------------------------

    Finally, two commenters indicated that the proposed requirement for
written agreements in Rule 15c6-2 may encourage parties to cancel their
transactions before the end of trade date when an allocation,
confirmation, or affirmation cannot be completed to avoid violating the
proposed rule.\240\
---------------------------------------------------------------------------

    \240\ See ICI Letter, supra note 16, at 7; Virtu Financial
Letter, supra note 16, at 3.
---------------------------------------------------------------------------

6. End-of-Day Trading, Transactions Across Multiple Time Zones, and
Variations in Local Holidays as Obstacles to Same-Day Affirmation
    Several commenters raised concerns about certain obstacles--such as
end-of-day trading, transactions across multiple time zones, and
variations in holiday schedules--that could interfere with achieving
same-day affirmation under proposed Rule 15c6-2.\241\ One commenter
stated that, given time zone

differences, a non-U.S. investment manager might not be able to fill
and execute its U.S. securities transactions before its local close of
business and, therefore, would not be able to achieve same-day
affirmation.\242\ Another commenter indicated that same-day affirmation
may be difficult to achieve for those in the same or similar time zones
for trades occurring at or near the U.S. market close, and that same-
day affirmation may not be feasible for those located in time zones
several hours ahead of the U.S., as new cut-off times would occur late
into their overnight.\243\ Some commenters stated that investment
advisers and their clients often rely on other parties to complete
certain aspects of the allocation, confirmation, and affirmation
process and, in doing so, are subject to the time zones and local
holiday schedules in the countries where these other parties operate,
which could prevent achieving same-day affirmation.\244\ The same
commenters requested that the Commission modify proposed Rule 15c6-2 to
offer broker-dealers some flexibility in situations where same-day
affirmation cannot be achieved because of circumstances that are beyond
their control.\245\ In this regard, some commenters recommended that
the Commission replace the written agreement requirement in proposed
Rule 15c6-2 with a requirement that broker-dealers adopt written
policies and procedures to facilitate same-day affirmation.\246\
---------------------------------------------------------------------------

    \241\ See AIMA Letter, supra note 29, at 2, 6-7; ISITC Letter,
supra note 29, at 6; SIFMA April Letter, supra note 16, at 5; Virtu
Financial Letter, supra note 16, at 3.
    \242\ See ISITC Letter, supra note 29, at 6.
    \243\ See AIMA Letter, supra note 29, at 2, 6-7.
    \244\ See ICI Letter, supra note 16, at 5-6; SIFMA April Letter,
supra note 16, at 5; Virtu Financial Letter, supra note 16, at 3.
    \245\ See ICI Letter, supra note 16, at 7; SIFMA April Letter,
supra note 16, at 5; Virtu Financial Letter, supra note 16, at 3.
    \246\ See ICI Letter, supra note 16, at 7; SIFMA April Letter,
supra note 16, at 5; Virtu Financial Letter, supra note 16, at 3.
---------------------------------------------------------------------------

7. Alternative Rule Recommended in SIFMA August Letter
    The Commission received an additional comment letter from SIFMA
addressing alternatives to proposed Rule 15c6-2.\247\ SIFMA recommended
that the Commission revise proposed Rule 15c6-2 to replace the written
agreement requirement with a requirement for policies and procedures to
support faster processing, as it would allow individual firms to design
policies and procedures tailored to their business models, products,
and unique customer bases while advancing the Commission's interest in
same-day affirmation.\248\ The Commission generally agrees that
requiring broker-dealers to establish, maintain, and enforce policies
and procedures for achieving same-day affirmation is an effective way
to improve affirmation rates because it promotes an orderly settlement
process, thereby helping to ensure timely settlement in a shortened
settlement cycle. The Commission also believes that establishing,
maintaining, and enforcing policies and procedures as an alternative
approach to compliance aside from entering into written agreements
enables broker-dealers to avoid the substantial burdens and challenges
that may be associated with negotiating written agreements in some
cases. Nonetheless, as previously discussed in Part III.B.5 above, the
Commission also believes that it is appropriate to retain the
requirement for written agreements as one of two options for broker-
dealers to achieve compliance with Rule 15c6-2.
---------------------------------------------------------------------------

    \247\ See SIFMA August 26th Letter, supra note 207, at 2-3.
    \248\ See id. at 2. In Part III.B.5 above, the Commission has
previously discussed why it believes it appropriate to retain the
written agreement requirement in the rule, while also adding an
option to establish, maintain, and enforce written policies and
procedures.
---------------------------------------------------------------------------

    SIFMA's recommendation included a number of elements. First, SIFMA
requested that Rule 15c6-2 be revised to require broker-dealers to
establish, document, and uphold policies and procedures reasonably
designed to maintain timely settlement rates.\249\ Second, SIFMA
recommended that such policies and procedures: (i) address the timing
of allocations, confirmations, and affirmations to ensure timely
settlement; (ii) include a communication plan with market participants;
(iii) provide a description of a broker-dealer's ability to monitor
compliance; (iv) include the development of controls and supervisory
procedures; and (v) include the development of metrics to measure
compliance.\250\ The Commission generally agrees with SIFMA's approach
and, as discussed in Part III.C below, is revising final Rule 15c6-2 to
allow broker-dealers to achieve compliance with the rule either by (1)
entering into written agreements or (2) establishing, maintaining, and
enforcing reasonably designed policies and procedures. Below, the
Commission discusses each of SIFMA's recommendations in turn.
---------------------------------------------------------------------------

    \249\ See id.
    \250\ See id. at 2-3.
---------------------------------------------------------------------------

    First, SIFMA requested that Rule 15c6-2 be revised to require
broker-dealers to establish, document, and uphold policies and
procedures reasonably designed to maintain timely settlement
rates.\251\ While the Commission agrees that a policies and procedures
approach can also advance the Commission's same-day affirmation
objective, the Commission believes that timely settlement is a
separate, if related, objective from same-day affirmation. Commission
rules have long established the standard for timely settlement, as
reflected by the requirements for the standard settlement cycle set
forth in Rule 15c6-1. In contrast, Rule 15c6-2, as proposed, seeks to
advance the objective of same-day affirmation. As discussed further in
Part III.C, the Commission believes that improving affirmation rates on
trade date is an objective separate and apart from, if nonetheless
related to, shortening the settlement cycle because it promotes an
orderly settlement process regardless of the length of the settlement
cycle. In the T+1 Proposing Release, the Commission stated that, while
proposed Rule 15c6-2 does not require settlement of the transaction on
trade date, the requirement for same-day affirmation supports orderly
settlement by reducing the likelihood of exceptions or other processing
errors that can lead to settlement fails.\252\ The Commission
recognizes that Rule 15c6-1 already addresses the concept of timely
settlement by establishing a standard settlement cycle. As a result,
the Commission believes that, while proposed Rule 15c6-2 should be
revised to incorporate a policies and procedures approach, the specific
objective of same-day affirmation, and not the more general objective
of timely settlement, remains the objective that such policies and
procedures should be reasonably designed to achieve.
---------------------------------------------------------------------------

    \251\ Id. at 2.
    \252\ See T+1 Proposing Release, supra note 2, at 10454-55.
---------------------------------------------------------------------------

    Second, SIFMA suggested that policies and procedures be designed to
address the timing of allocations, confirmations, and affirmations to
ensure timely settlement.\253\ The Commission agrees that addressing
the timing of allocations, confirmation, and affirmations on trade date
can help advance the objective of same-day affirmation, and, as
discussed further in Part III.C below, the Commission is including in
the final rule a requirement for policies and procedures to include
target time frames on trade date for achieving allocations,
confirmations, and affirmations.\254\
---------------------------------------------------------------------------

    \253\ See SIFMA August 26th Letter, supra note 207, at 2.
    \254\ See Rule 15c6-2(b)(2).
---------------------------------------------------------------------------

    Third, SIFMA suggested that policies and procedures be designed to
include a communication plan with market

participants.\255\ The Commission agrees with this suggestion, and, as
discussed further in Part III.C below, the Commission is including in
the final rule a requirement for reasonably designed policies and
procedures that include the procedures the broker-dealer will follow to
ensure the prompt communication of trade information, investigate any
discrepancies in trade information, and adjust trade information to
help ensure that the allocation, confirmation, and affirmation process
can be completed by the target time frames on trade date.\256\
---------------------------------------------------------------------------

    \255\ See SIFMA August 26th Letter, supra note 207, at 2.
    \256\ See Rule 15c6-2(b)(3).
---------------------------------------------------------------------------

    Finally, SIFMA suggested that the policies and procedures be
designed to provide a description of a broker-dealer's ability to
monitor compliance, include the development of controls and supervisory
procedures, and include the development of metrics to measure
compliance.\257\ The Commission also agrees that these elements can
ensure that policies and procedures are effective at helping to ensure
that allocations, confirmations, and affirmations can be completed on
trade date. Accordingly, and as discussed further in Part III.C below,
the Commission is including in the final rule similar requirements as
those described by SIFMA for reasonably designed policies and
procedures that identify and describe any technology systems,
operations, and processes used to coordinate with relevant parties to
ensure completion of the allocation, confirmation, or affirmation
process; \258\ describe how the broker-dealer plans to identify and
address delays; \259\ and measure, monitor, and document the rates of
allocations, confirmations, and affirmations completed as soon as
technologically practicable and no later than the end of trade
date.\260\
---------------------------------------------------------------------------

    \257\ See id. at 2-3.
    \258\ See Rule 15c6-2(b)(1).
    \259\ See Rule 15c6-2(b)(4).
    \260\ See Rule 15c6-2(b)(5).
---------------------------------------------------------------------------

C. Final Rule and Discussion

    After considering the above comments, the Commission continues to
believe that implementing a T+1 standard settlement cycle will require
significant improvements in the current rates of same-day affirmations
to help ensure timely settlement in a T+1 environment.\261\ Although
the Commission agrees that the incentives identified by commenters in
Part III.B.1 exist and help ensure timely settlement, the Commission
believes that these incentives alone are insufficient to significantly
improve same-day affirmation rates, as required to facilitate
shortening the standard settlement cycle to T+1.\262\ While data cited
in the T+1 Proposing Release indicates that affirmation rates have
improved over time, the improvements have been only modest.\263\
Currently, despite existing commercial incentives and efforts to
establish ``same-day affirmation'' as an industry best practice, only
about 68% of trades achieve affirmation on trade date.\264\ Because the
above incentives and efforts, on their own, have not sufficiently
improved the current rate of same-day affirmations, the Commission
believes that additional regulatory steps--including establishing a
Commission requirement designed to advance the same-day affirmation
objective--are needed. In this way, a Commission rule effectively
targeted to the same-day affirmation objective can increase the rate of
same-day affirmation for several reasons.\265\
---------------------------------------------------------------------------

    \261\ See T+1 Proposing Release, supra note 2, at 10453.
    \262\ See T+1 Report, supra note 61, at 13 (highlighting the
need for achieving affirmation on trade date and encouraging that
affirmations be completed by 9:00 p.m. ET on trade date to
facilitate shortening the standard settlement cycle to T+1).
    \263\ T+1 Proposing Release, supra note 2, at 10453 n.156
(citing DTCC, Proposal to Launch a New Cost-Benefit Analysis on
Shortening the Settlement Cycle (Dec. 2011), available at https://www.dtcc.com/en/news/2011/december/01/proposal-to-launch-a-new-costbenefit-analysis-on-shortening-the-settlementcycle.aspx).
    \264\ See Sean McEntee, Executive Director, ITP Product
Management, DTCC, Remarks at the DTCC ITP Forum--Americas (June 17,
2021) (``DTCC ITP Forum Remarks''), available at https://www.dtcc.com/events/archives.
    \265\ See infra notes 578-581 and accompanying text (discussing
the anticipated economic benefits of Rule 15c6-2 for the rate of
same-day affirmations).
---------------------------------------------------------------------------

    First, in the absence of such a rule, the existing incentives
identified by commenters tend only to impose substantial costs on the
parties if a transaction fails to settle on time (i.e., pursuant to the
standard settlement cycle set forth in Rule 15c6-1(a)). However,
failing to affirm by the end of trade date increases the likelihood
that errors or exceptions will not be resolved in time for settlement.
The sooner the parties have affirmed the trade information for their
transaction, the lower the likelihood of a settlement fail because the
parties will have more time to identify and resolve any potential
errors. Second, many institutional transactions are not eligible for
netting through the CCP because the relevant securities are held by a
custodian bank that is not a CCP participant, and so market
participants that use such a custodian do not have the option for--or
the accompanying incentive to complete allocations, confirmations, and
affirmations by the submission times that would facilitate--netting at
the CCP.\266\ While industry planning for T+1 does contemplate creating
new incentives to specifically induce same-day affirmations by certain
cutoff times,\267\ even when the transaction will not be submitted to
the CCP for netting, the associated costs for failing to meet such
cutoff times are likely to be minor in comparison to the costs
associated with a failure to settle the transaction.\268\ As a result,
market participants may not take steps to realize the benefits that
accrue from achieving allocations, confirmations, and affirmations on
trade date, even when they are subjected to costs that arise from
failing to achieve timely settlement. Third, the costs associated with
failing to affirm a transaction, or with failing to achieve a buy-in,
can be shifted among the parties settling the transaction, reducing the
likelihood that these incentives will induce the parties to identify
potential improvements to their processes over time because they do not
internalize the full costs of failing to complete the allocation,
confirmation, and affirmation process on trade date. In addition,
because of the costs associated with improving processes and
implementing new technologies, these incentives may only induce change
when a broker-dealer is engaged in a high volume of

transactions for which errors are recurring and is also internalizing
the costs associated with correcting those errors. Otherwise, a broker-
dealer and the relevant parties may deploy ``just in time'' solutions,
where the allocation, confirmation, and affirmation process is
completed on settlement date or never completed, while shifting any
higher costs associated with ensuring the timely settlement of the
transaction to others.\269\
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    \266\ NSCC and DTCC ITP jointly offer an optional service called
``ID Net'' for transactions affirmed by DTCC ITP. The service
enables broker-dealers who are members of both NSCC and DTC to
aggregate and net for delivery purposes their institutional
transactions, affirmed via DTCC ITP, with their transactions pending
for settlement in NSCC's Continuous Net Settlement (``CNS'') system.
See DTCC, ID Net, https://www.dtcc.com/settlement-and-asset-services/settlement/id-net. Nevertheless, such affirmed transactions
are not guaranteed by NSSC and NSCC does not provide any margin
offset to the broker-dealers' clearing fund requirements. See
Exchange Act Release No. 93070 (Sept. 20, 2021), 86 FR 53125 (Sept.
24, 2021) (SR-NSCC-2021-011) (approving NSCC rule change to remove
ID Net transactions from required fund deposit calculations).
    \267\ See T+1 Report, supra note 61, at 13-14 (for a T+1
settlement cycle, encouraging allocations be complete by 7:00 p.m.
ET on trade date and recommending a new affirmation cutoff time of
9:00 p.m. ET on trade date).
    \268\ Specifically, failing to submit allocation, confirmation,
and affirmation data by the cutoff time will likely require a
participant to submit the transaction manually to DTC, raising the
cost of the transaction. See infra note 269 and accompanying text
(discussing the different fees that DTC applies depending on the
timing or method of submission for settlement). If, a market
participant fails to settle the transaction, however, it may be
subject to buy-in obligations, whereby the market participant may
need to internalize not just the cost of completing the transaction
manually but also the cost of replacing the trade to the extent that
the market price of the transaction has moved against the market
participant since trade execution.
    \269\ See, e.g., DTCC, Guide to the 2023 DTC Fee Schedule,
https://www.dtcc.com/-/media/Files/Downloads/legal/fee-guides/DTC-Fee-Schedule.pdf (setting different prices for night deliver orders,
day deliver orders, matched institutional trades, and exceptions
processing).
---------------------------------------------------------------------------

    In proposing a requirement for written agreements, the Commission
intended for the relevant parties, through these agreements, to
establish more thoughtful and orderly processes--established prior to
trade execution--so that the parties to the transaction and their
agents would have a shared understanding as to what steps were
necessary to ensure that allocations, confirmations, and affirmations
could be completed across the range of transactions into which they
enter, and what consequences would result if a party (or its agent)
failed to provide the necessary allocation, confirmation, or
affirmation no later than the end of trade date.\270\
---------------------------------------------------------------------------

    \270\ To promote such preparation ex ante, the Commission has
modified the final rule to enable broker-dealers to pursue a
policies and procedures approach as an alternative to written
agreements. See infra Part III.C.2 (discussing the policies and
procedures alternative).
---------------------------------------------------------------------------

    In addition, the Commission believes that it is appropriate to
impose obligations on a broker-dealer, even though the broker-dealer is
only responsible for its own actions and not for the actions of others
under Rule 15c6-2, because the broker-dealer has the ability, in some
circumstances, to modify the conduct of the other relevant parties with
which the broker-dealer may participate in the allocation,
confirmation, and affirmation process to ensure its own compliance with
the rule. As a result, the Commission believes that imposing such
obligations on broker-dealers can increase the rate of same-day
affirmation for institutional transactions,\271\ thereby promoting the
timely and orderly settlement of securities transactions, because many
broker-dealers will have relationships across multiple advisers,
custodians, and other types of agents, and therefore can introduce
better processes and procedures across a range of different
relationships. Although the broker-dealer ultimately may not be in a
position to bind the behavior of others,\272\ the Commission believes
that market participants are generally aligned in support of
facilitating same-day allocations, confirmations, and affirmations for
their transactions to the greatest extent possible. The Commission
believes that same-day affirmation is an important objective that can
facilitate an orderly and efficient transition to a T+1 and shorter
settlement cycles, and that Rule 15c6-2 will incentivize broker-dealers
to identify and deploy effective practices for achieving allocations,
confirmations, and affirmations ex ante, thereby improving the rate of
allocations, confirmations, and affirmations over time.
---------------------------------------------------------------------------

    \271\ To measure progress on the same-day affirmation objective,
the Commission is also adopting a requirement for CMSPs to submit to
the Commission an annual report on straight-through processing that
is required to include data on the rate of allocations,
confirmations, and affirmations, enabling the Commission to measure
progress on these metrics over time. See infra Part V.C.2.(c)
(discussing the data elements required in the annual report, which
include data concerning allocations, confirmations, and
affirmations).
    \272\ Nonetheless, brokers do design their fees, in part, to
address the risks that they face, including settlement risk. See
infra notes 567-568 and accompanying text (explaining that broker-
dealers set their fees, in part, to manage settlement risks).
Broker-dealers may determine to raise the cost of trading for
customers that do not facilitate same-day affirmation pursuant to a
broker-dealer's written agreements or written policies and
procedures, as applicable.
---------------------------------------------------------------------------

    As explained in the T+1 Proposing Release, the compliance burden
imposed on broker-dealers by Rule 15c6-2 is to have a written agreement
in place with its customers that requires that the allocation,
confirmation, and affirmation process be completed as soon as
technologically practicable and no later than the end of the day on
trade date in such form as may be necessary to achieve settlement in
compliance with Rule 15c6-1(a).\273\ In the Commission's view, even a
simple requirement to have an agreement in place can effectively
promote same-day affirmation because it helps ensure that the parties
to a transaction where allocation, confirmation, or affirmation will
occur have agreed in advance of entering the transaction as to the
operational arrangements necessary to ensure the allocation,
confirmation, or affirmation of the transaction. Rule 15c6-2 would not
expose a non-breaching broker-dealer to liability for violating the
rule based on the actions of its customer, or customer's agent,
provided that the written agreement describes the obligations of the
parties to ensure the allocation, confirmation, or affirmation of the
transaction, and the broker-dealer itself has complied with its
obligations under the written agreement. The Commission understands
that commercial relationships between broker-dealers and other parties,
such as investment advisers, often describe and, when possible,
quantify expectations between the parties as to the timing of and other
circumstances affecting the transfer of securities and funds,
establishing costs and other terms that may apply if one of the parties
to the agreement fails to meet its obligations for a certain threshold
of transactions within a certain timeframe. Adding a contractual
requirement for the same-day allocation, confirmation, and affirmation
of institutional transactions that would be executed and settled as
part of such commercial relationship, in the Commission's view, is
likely to increase the percentage of transactions for which
allocations, confirmations, and affirmations are completed on trade
date.
---------------------------------------------------------------------------

    \273\ See T+1 Proposing Release, supra note 2, at 10453.
---------------------------------------------------------------------------

    As a general matter, the Commission acknowledges that some of the
incentives identified by commenters may better align with the objective
of same-day affirmation in a T+1 environment than in a T+2 environment
because market participants are likely to endeavor to submit trades
that are eligible for netting to the CCP for settlement during a new
overnight process planned for the evening of trade date,\274\ a process
that would be unavailable unless the parties complete trade
allocations, confirmations, and affirmations on trade date. As stated
by some commenters, the final design of deadlines and related
operational requirements at the CCP, and at the industry level more
generally, will encourage market participants to improve the rate of
allocations, confirmations, and affirmations completed on trade date,
as will the shortening of the settlement cycle more generally.\275\
Nonetheless, the Commission believes that final Rule 15c6-2, modified
as discussed further below, can help ensure that incentives with
respect to allocations, confirmations, and affirmations are aligned
with timely and orderly settlement, critical to ensuring that the rate
of settlement fails remains low as the settlement cycle continues to
shorten.\276\
---------------------------------------------------------------------------

    \274\ See T+1 Report, supra note 61, at 13.
    \275\ See supra Part III.B.1 (discussing these comments).
    \276\ See infra note 272 (discussing the ability of broker-
dealers to use their schedule of fees to impose costs on customers
or agents thereof that prevent completion of the allocation,
confirmation, and affirmation process on trade date).

---------------------------------------------------------------------------

    On balance, the Commission believes that final Rule 15c6-2, with
the modifications discussed below to address specific concerns raised
by commenters, will increase the incentive to submit allocations,
confirmations, and affirmations on trade date, discouraging ``just in
time'' solutions that may jeopardize timely settlement in a T+1
environment. In particular, the Commission believes that ``just in
time'' solutions may increase the rate of settlement fails in a T+1
environment because the parties to a transaction will have
significantly less time to resolve issues that can prevent settlement,
raising the possibility that errors associated with the allocation,
confirmation, and affirmation process may delay timely settlement.
Improving the rate of same-day affirmations thereby promotes an orderly
and efficient settlement process. More generally, as discussed in the
T+1 Proposing Release, agreeing to trade information as close in time
as is technologically practicable to trade execution helps ensure that
any discrepancies in trade details are identified and resolved far
enough in advance to ensure timely and orderly settlement.\277\ In this
way, Rule 15c6-2 can promote an orderly and efficient process in a T+1
environment because it substantially increases incentives for market
participants to complete the key task of agreeing to trade information,
including the price of the transaction and quantity of shares to be
transferred, on trade date.
---------------------------------------------------------------------------

    \277\ See T+1 Proposing Release, supra note 2, at 10454-55.
---------------------------------------------------------------------------

1. Modifications to Requirement for Written Agreements
    The Commission is adopting Rule 15c6-2 with several modifications.
First, with respect to the requirement to enter written agreements to
ensure the completion of the allocation, confirmation, affirmation, or
any combination thereof, for the transaction as soon as technologically
practicable and no later than the end of the day on trade date in such
form as necessary to achieve settlement of the transaction, the
Commission is revising the rule to replace references in the text to
``customer'' with ``relevant parties'' to better align the obligations
under Rule 15c6-2 with the market dynamics that currently exist between
broker-dealers, their customers, and their customers' use of advisers,
custodians, and other third party agents as they participate in post-
trade processes, including the allocation, confirmation, and
affirmation process.
    The Commission believes that this modification helps reduce the
likelihood that broker-dealers would need to enter into new agreements
with their customers specifically for the purpose of ensuring the same-
day affirmation of the transaction. It also removes the need for a
broker-dealer to enter into an agreement with its customer specific to
same-day affirmation if a third-party, such as an adviser, custodian or
other agent of its customer, would be the party to engage with the
broker-dealer to ensure the allocation, confirmation, or affirmation of
the transaction. As discussed in the T+1 Proposing Release,\278\ the
Commission intended for ``customer'' to include the relevant parties to
a transaction that would participate in the allocation, confirmation,
and affirmation process and would include the customer, the customer's
investment adviser, the customer's custodian, or any other agent acting
(directly or indirectly) on behalf of the customer. The modification
helps ensure that, when a broker-dealer is considering whether and with
which entities to enter into written agreements, the broker-dealer
needs to identify only the relevant party or parties that will have a
role or roles in completing the allocation, confirmation and
affirmation process. The Commission also believes that this
modification helps ensure that Rule 15c6-2 is appropriately designed to
impose a written agreement requirement where a written agreement is
practical and can help ensure the same-day affirmation of a
transaction, even if many broker-dealers may ultimately choose to
implement the rule through the policies and procedures alternative
discussed in Part III.C.2.
---------------------------------------------------------------------------

    \278\ See T+1 Proposing Release, supra note 2, at 10454; see
also Part III.A.
---------------------------------------------------------------------------

    The Commission's understanding is that, even if such party is not
the broker-dealer's own customer, some broker-dealers may choose to
enter into commercial agreements with such other relevant parties in
order to support their customer relationships, collect fees, and
otherwise facilitate the operational processes necessary to complete
and settle the transaction. Rule 15c6-2 does not require, however, that
a broker-dealer enter into written agreements with parties that do not
have a role in the allocation, confirmation, and affirmation process.
For example, if a broker-dealer is acting in the capacity of an
executing broker on behalf of a customer and another broker-dealer will
take responsibility for completing the allocation, confirmation, and
affirmation process with the relevant parties to settle the transaction
(a ``clearing broker'' in this context), then the executing broker need
only comply with the rule to the extent that it participates in the
allocation, confirmation, and affirmation process. An executing broker
that does not participate in such processes would face no obligations
under the rule. If an executing broker does undertake certain
obligations with respect to its customer, such as may be delineated in
its commercial arrangements with the relevant clearing broker, then
under Rule 15c6-2 such a broker-dealer generally should ensure that its
arrangements with the clearing broker identify that the clearing broker
will be the broker-dealer ``engaging in the allocation, confirmation,
and affirmation process'' for compliance with Rule 15c6-2. If the
executing broker and the clearing broker do not have written agreements
that establish the commercial relationship between them, then the
executing broker generally should consider whether it needs to
establish, implement, and maintain policies and procedures to identify
and explain its role and its relationship with the clearing broker,
consistent with Rule 15c6-2(a)(2), discussed in Part III.C.2. In
contrast to an executing broker--which may not participate in the
allocation, confirmation, and affirmation process--the clearing broker
that facilitates the settlement of the transaction, and thereby
participates in the allocation, confirmation, and affirmation process,
would need to comply with Rule 15c6-2.
    Second, the Commission is making other technical changes to the
written agreements requirement to simplify the rule text and to
accommodate the new alternative for broker-dealers to establish,
maintain, and enforce written policies and procedures to ensure
completion of the allocation, confirmation and affirmation as soon as
technologically practicable and no later than the end of the day on
trade date.\279\ The Commission is removing the prohibition language in
the rule (i.e., ``No broker or dealer . . . shall'') and replacing it
with an affirmative obligation (i.e., ``A broker or dealer shall'').
---------------------------------------------------------------------------

    \279\ See infra Part III.C.2 (discussing the policies and
procedures alternative in Rule 15c6-2(a)(2)).
---------------------------------------------------------------------------

    In addition, the Commission has removed language that paralleled
the language in Rule 15c6-1 regarding the scope of affected securities
under the rule (``a contract for the purchase or sale

of a security (other than an exempted security, a government security,
a municipal security, commercial paper, bankers' acceptances, or
commercial bills)''). The Commission has replaced the proposed language
with a cross reference to the rule (e.g., ``a securities transaction
that is subject to the requirements of Sec.  240.15c6-1(a)''). The
purpose of this change is to simplify the rule text and ensure that the
scope of transactions relevant to compliance with Rule 15c6-2 remains
consistent with the scope of transactions under Rule 15c6-1(a). The
scope of transactions remains unchanged from the proposed rule, as
discussed in the T+1 Proposing Release, and is the same scope of
transactions as those covered by Rule 15c6-1(a) for which the broker-
dealer will engage in the allocation, confirmation, or affirmation
process with another party.\280\
---------------------------------------------------------------------------

    \280\ See T+1 Proposing Release, supra note 2, at 10453.
---------------------------------------------------------------------------

    Finally, as discussed further in Part III.C.2, the Commission is
modifying proposed Rule 15c6-2 to provide two options by which broker-
dealers may comply with the rule, as adopted. The two options are set
forth in new paragraphs (a)(1) and (2). The first option, reflected in
paragraph (a)(1), is the proposed requirement for written agreements,
modified in the ways discussed above. The second option, reflected in
paragraph (a)(2), provides an alternative to the written agreements
requirement, where, in lieu of a written agreement, a broker-dealer may
choose to establish, maintain, and enforce written policies and
procedures reasonably designed to ensure the completion of the
allocation, confirmation, affirmation, or any combination thereof, for
the transaction as soon as technologically practicable and no later
than the end of the day on trade date in such form as necessary to
achieve settlement of the transaction.
    While the Commission believes that a policies and procedures
approach can relieve the parties to an institutional transaction from
the burden of negotiating a written agreement where one does not exist,
the Commission believes that the written agreement requirement may be
useful to those broker-dealers that have already established written
agreements that govern the operational arrangements for certain
commercial relationships. Specifically, such broker-dealers that
already have written agreements in place to manage their commercial
relationships with their customers' advisers, custodians or other
agents may find it efficient to revise these written agreements to
comply with Rule 15c6-2. Even where written agreements do not currently
exist, if the relevant parties are amenable to entering into a written
agreement to manage their responsibilities under the allocation,
confirmation, and affirmation process, a broker-dealer may find that
such agreement is an effective tool for identifying the circumstances
and operational arrangements that the relevant parties ought to
negotiate and agree to ensure the same-day allocation, confirmation and
affirmation of the transaction, in a similar way that developing
policies and procedures would also identify and describe the
circumstances and operational arrangements for each relevant
relationship that would be necessary to ensure the completion of
allocations, confirmations and affirmations.
    Ultimately, the written agreement requirement is designed to
achieve the same goals as the alternative policies and procedures
requirement, and broker-dealers may elect to comply with the
alternative that they believe is better suited to their existing
operations, specific business model, customer base, securities offered
for settlement, and commercial relationships. In some cases, because
written agreements would be individually tailored to a specific
commercial relationship, they may help broker-dealers and the other
relevant parties to an institutional transaction develop innovations
that improve the allocation, confirmation, and affirmation process.
Nonetheless, as previously discussed, the Commission acknowledges that
the costs and challenges of negotiating a written agreement with the
relevant parties may lead broker-dealers to choose to implement the
rule via the policies and procedures requirement.
    In addition, the Commission believes that replacing the term
``customer'' with ``other relevant parties'' and to add an option to
establish, maintain, and enforce written policies and procedures
reasonably designed to ensure the completion of allocations,
confirmations, and affirmations addresses the comments regarding use of
third parties discussed in Part III.B.4.\281\ First, the modifications
ensure that the requirements apply not to the broker-dealer and its
customer but instead to the broker-dealer and the relevant parties that
ensure the completion of the allocation, confirmation, and affirmation
process. Such parties may be the customer, the customer's investment
adviser, the customer's custodian, or another agent acting directly or
indirectly on behalf of the customer.\282\ Second, where the adviser is
the relevant party with whom the broker-dealer will engage to complete
the allocation, confirmation, or affirmation process, then the broker-
dealer may seek either to establish a written agreement to ensure
compliance with the rule, or the broker-dealer may instead choose to
establish, maintain, and enforce policies and procedures under the
rule. In the latter case, the broker-dealer may still seek to establish
arrangements with the relevant parties to achieve compliance with the
rule.\283\
---------------------------------------------------------------------------

    \281\ Such policies and procedures would be required to include
the elements described in Part III.C.3 below.
    \282\ See supra notes 205-206 and accompanying text (describing
the same).
    \283\ For example, consistent with the requirements of Rules
15c6-2(b)(3) and (4), as discussed further in Part III.C.3, policies
and procedures would be required to, under paragraph (b)(3) describe
the procedures that the broker or dealer will follow to ensure the
prompt communication of trade information, investigate any
discrepancies in trade information, and adjust trade information to
help ensure that the allocation, confirmation, and affirmation can
be completed by the target time frames on trade date, and, under
paragraph (b)(4), describe how the broker or dealer plans to
identify and address delays if another party (such as an investment
adviser or a custodian) is not promptly completing the allocation or
affirmation for the transaction, or if the broker or dealer
experiences delays in promptly completing the confirmation. It may
be useful for broker-dealers to engage with the relevant parties to
the allocation, confirmation, and affirmation process regarding the
nature of these communications.
---------------------------------------------------------------------------

2. New Policies and Procedures Alternative to Written Agreements
Requirement
    As previously discussed, the Commission is modifying proposed Rule
15c6-2 to enable a broker-dealer either to (1) enter into written
agreements or (2) establish, maintain, and enforce reasonably designed
written policies and procedures to ensure completion of the allocation,
confirmation, affirmation, or any combination thereof, for a
transaction as soon as technologically practicable and no later than
the end of the day on trade date, in such form as necessary to achieve
settlement. The Commission is providing broker-dealers with this
discretion under the rule to allow broker-dealers to select the
approach that best aligns with their existing business practices and
customer relationships, and to consider the approach that best enables
the broker-dealer to ensure the completion of allocations,
confirmations, and affirmations as soon as technologically practicable
and no later than the end of the trade date.
    In response to the concerns raised by commenters in Part III.B.5,
the

Commission generally agrees that requiring policies and procedures as
an alternative approach to compliance, separate from entering into
written agreements, provides broker-dealers with more flexibility to
achieve same-day affirmation. As a general matter, the Commission
believes that the policies and procedures alternative in Rule 15c6-2
can help ensure that, when the parties to a transaction encounter
obstacles that may prevent them from completing an allocation,
confirmation, or affirmation on trade date, they have policies and
procedures to navigate, address, and when possible mitigate or overcome
such obstacles.\284\ The Commission also acknowledges that, in cases
where written agreements do not already exist, a requirement to enter
into such agreements specifically to achieve same-day affirmations may
create substantial burdens and challenges. Such challenges may include,
for example, a client who chooses not to authorize its investment
adviser to enter into such agreement or circumstances where multiple
third parties are relied upon to complete elements of the allocation,
confirmation, and affirmation process. Similarly, in the context of
RVP/DVP transactions discussed in Part III.B.5, while some broker-
dealers that regularly engage in RVP/DVP transactions may choose to
enter into commercial agreements with their counterparties or agents of
their counterparties to help facilitate this process, not all do and
may instead rely on a combination of best practices, relationship
management, and the obligations imposed by Commission or SRO rules as a
substitute for a formal written agreement among the parties necessary
to ensure the allocation, confirmation, and affirmation of the
transaction. For those broker-dealers who do choose to enter into such
agreements, the requirement for written agreements can be an effective
and efficient mechanism for advancing the same-day affirmation
requirement because it enables them to leverage their existing
operational arrangements already established under the written
agreements to codify the steps that the parties will take to ensure the
same-day affirmation of transactions executed pursuant to the
agreement. Nonetheless, the Commission also believes that an
alternative policies and procedures requirement will help relieve
broker-dealers of the burdens and challenges that, in some cases, may
arise if broker-dealers are required to enter into new written
agreements specifically for the purpose of facilitating same-day
affirmation.\285\ The Commission recognizes that, in response to this
modification, and due to the costs and challenges of entering into
written agreements identified by commenters generally, nearly all
broker-dealers that do not already have written agreements may choose
to implement the rule through the policies and procedures requirement
rather than the written agreement requirement.\286\
---------------------------------------------------------------------------

    \284\ For example, reasonably designed policies and procedures
generally could include robust compliance and monitoring systems;
processes to escalate identified instances of noncompliance for
remediation; procedures that designate responsibility to business
line personnel for supervision of functions and persons; processes
for escalating issues; processes for periodic review and testing of
the adequacy and effectiveness of policies and procedures; and
training on policies and procedures. The Commission discusses the
specific elements required of reasonably designed written policies
and procedures under Rule 15c6-2(b) in Part III.C.3.
    \285\ See supra Part III.B.1 and infra Part III.B.7.
    \286\ For purposes of estimating the Paperwork Reduction Act
(``PRA'') burdens under Rule 15c6-2, the Commission has assumed that
all respondent broker-dealers will implement the rule through the
policies and procedures requirement. See infra Part IX.C.
---------------------------------------------------------------------------

    Regardless of the alternative chosen, the Commission recognizes
that same-day affirmation still may not be achievable in all
circumstances due to particular obstacles associated with the
transaction, including the time of the transaction, the time zone in
which a party to the transaction resides, and/or variations in local
holidays.\287\ The difficulty associated with achieving a same-day
affirmation will necessarily vary depending on the types of
transactions entered, the locations of the parties, and the
sophistication of their operational arrangements. The Commission also
generally agrees with commenters that requiring policies and procedures
as an alternative approach to compliance, separate from entering into
written agreements, provides broker-dealers with more flexibility to
achieve same-day affirmation while also avoiding the substantial
burdens and challenges that, in some cases, may result from having to
enter into written agreements specifically to address the same-day
affirmation objective.
---------------------------------------------------------------------------

    \287\ See supra Part III.B.6 (discussing comments expressing
concerns about these obstacles).
---------------------------------------------------------------------------

    Whatever approach the broker-dealer determines is most appropriate
for its circumstances and set of relationships, the Commission believes
that either written agreements or policies and procedures can be
structured to address challenges associated with the timing
considerations raised by the commenters. Where commercial relationships
exist, for example, the parties retain the ability to specify in their
written agreements what steps are appropriate to ensure that
allocations, confirmations, and affirmations can be completed on trade
date. They can choose to specify how to accelerate the process to
accommodate end of day trading, as well as how to staff their
operations to ensure that the parties are available to complete
allocations, confirmations, and affirmations across multiple time zones
and, when needed, to plan for and accommodate local holidays. In some
cases, depending on the business model and scope of relationships that
a broker-dealer employs to complete allocations, confirmations, and
affirmations, establishing, maintaining, and enforcing written policies
and procedures may be a more effective tool for navigating the
challenges that may occur for some end-of-day transactions and
transactions across multiple jurisdictions. For example, to be
reasonably designed, policies and procedures generally should address
the steps that would be taken in response to known obstacles to same-
day affirmation, such as when transactions are entered at the end of
the trading day, transactions where one or both parties operate in
other jurisdictions, and circumstances where local holidays or
different time zones may limit the ability of the parties to
communicate. Where the parties cannot reach agreement on these matters
in their written agreements, reasonably designed policies and
procedures generally should establish the steps that a broker-dealer
would take to accommodate multiple time zones and local holidays, and
how the broker-dealer would plan to accelerate its processes to ensure
the completion of allocations, confirmations, and affirmations for
transactions entered near the end of day. Written agreements and
reasonably designed policies and procedures could also clearly define,
for example, circumstances to avoid, or acceleration procedures to
follow, when a same-day affirmation may otherwise be difficult to
achieve because of potential timing constraints.
    For broker-dealers that maintain written agreements, such written
agreements often establish thresholds or expectations regarding the
completion of certain operational processes, and such agreements could
incorporate thresholds or expectations with respect to end-of-day
trading, time zones, and local holidays. When time pressures are
especially difficult, the parties could negotiate acceleration
procedures to complete allocations, confirmations, and affirmations on
trade date. When this is not possible, a broker-dealer's

policies and procedures generally should establish target time frames
on trade date for completing allocations, confirmations, and
affirmations and describe how the broker-dealer plans to identify and
address delays. The Commission is also including in the final rule a
requirement that policies and procedures specify the procedures the
broker-dealer will follow to ensure the prompt communication of trade
information, investigate any discrepancies in trade information, and
adjust trade information to help ensure completion of the allocation,
confirmation, and affirmation by the target time frames on trade date.
    In this regard, the Commission does not believe the rule, as
modified, incentivizes the parties to cancel trades because a broker-
dealer would not be in violation of Rule 15c6-2 by failing to achieve
the allocation, confirmation, or affirmation on trade date for a single
trade unless it had failed to either enter into written agreements or
establish, maintain, and enforce reasonably designed policies and
procedures consistent with the rule. With respect to policies and
procedures under Rule 15c6-2, the Commission believes that maintaining
and enforcing such policies and procedures means that a broker-dealer
generally should ensure that it has designed its own systems and
operations, and deployed sufficient resources to address, any potential
systemic failures within its own process.\288\
---------------------------------------------------------------------------

    \288\ See supra note 284 (also discussing several processes that
policies and procedures generally could include to promote the
objectives of the Rule 15c6-2).
---------------------------------------------------------------------------

    In addition, while the Commission specifies in Part III.C.3 several
elements that such policies and procedures must include to be
reasonably designed under Rule 15c6-2 (e.g., identification and
description of technology systems, operations, and processes that the
broker-dealer uses to coordinate with other relevant parties to ensure
completion of the allocation, confirmation, or affirmation process for
the transaction), the Commission has not included in the rule similar
elements to be required of written agreements, allowing a broker-dealer
flexibility to negotiate and draft written agreements with the other
parties and, potentially, to explore innovative methods for ensuring
the allocation, confirmation, and affirmation of the transaction where
unique operational arrangements specific to a given commercial
relationship may enable new or specific approaches. Because written
agreements are subject to negotiation with the other relevant parties,
they are likely to consider a range of commercial interests that derive
from the relationship between the parties.
    The Commission is not requiring investment advisers to adopt
similar policies and procedures because investment advisers will not
always be among the relevant parties completing the allocation,
confirmation, and affirmation. An adviser that enters into a Rule 15c6-
2 agreement with a broker-dealer, or transacts with a broker-dealer
that has policies and procedures reasonably designed to ensure timely
completion of the allocation, confirmation, affirmation processes
pursuant to the requirements of Rule 15c6-2, may, as a best practice,
wish to evaluate whether its policies and procedures are sufficient to
ensure compliance with such agreement or other obligations requested by
the broker-dealer.
3. Elements of Reasonably Designed Policies and Procedures
    The Commission believes that a policies and procedures approach can
be an effective tool for ensuring the completion of allocations,
confirmations, and affirmations so long as they consider holistically
the broker-dealer's available set of tools, responsibilities to the
relevant parties, ability to communicate and resolve issues among the
parties for a given transaction, and provide a mechanism for tracking
progress over time. With these objectives in mind, and to ensure
policies and procedures are effective at achieving the stated
objective, the Commission is adding new paragraph (b) to Rule 15c6-2 to
specify the elements that such policies and procedures should include,
as discussed further below.
    First, the Commission is requiring under paragraph (b)(1) that
policies and procedures be reasonably designed to identify and describe
any technology systems, operations, and processes that the broker-
dealer uses to coordinate with other relevant parties, including
investment advisers and custodians, to ensure completion of the
allocation, confirmation, or affirmation process for the transaction.
The purpose of this provision is to ensure that the broker-dealer
considers holistically the range of systems and tools it has available
to facilitate the same-day affirmation objective, as well as the range
of operations and processes that a broker-dealer uses to facilitate
same-day affirmations across different customer and commercial
relationships. In this way, such policies and procedures can establish
whether and when different processes are necessary to facilitate same-
day affirmations because certain transactions or customer types require
different arrangements. For example, a broker-dealer may have a
specific policy or operational arrangement that addresses allocations,
confirmations, and affirmations for a customer whose securities are
held by a prime broker versus a customer whose securities are held by a
bank custodian. A broker-dealer generally should also seek written
assurances from advisers or custodians to help ensure that they
understand and internalize their respective roles in facilitating
completion of the allocation, confirmation, and affirmation
process.\289\ Similarly, the broker-dealer may require different
arrangements for a customer who engages directly with the broker-dealer
versus a customer whose investment adviser or custodian engages with
the broker-dealer on its behalf. The broker-dealer may also require
different systems, operations, or processes to manage customer
relationships where the other relevant parties to the transaction
operate in other time zones or jurisdictions. Consistent with paragraph
(b)(1), reasonably designed policies and procedures are required to
identify and describe any technology systems, operations, and processes
that the broker or dealer uses to coordinate with other relevant
parties (such as investment advisers and custodians) to ensure
completion of the allocation, confirmation, or affirmation process for
the transaction. To be reasonably designed, such policies and
procedures would need to categorize and assess the range of operational
arrangements and processes that would be used to facilitate the
allocation, confirmation, and affirmation process across the full range
of different customer and

transaction types for which it offers services.
---------------------------------------------------------------------------

    \289\ As stated in Part III.C.2, the Commission is not requiring
investment advisers to adopt policies and procedures similar to
those in Rule 15c6-2(b) because investment advisers will not always
be among the relevant parties completing the allocation,
confirmation, and affirmation. However, an adviser that transacts
with a broker-dealer that has policies and procedures pursuant to
Rule 15c6-2 may wish to evaluate whether its own policies and
procedures are sufficient to ensure compliance with obligations
requested by the broker-dealer. Where an adviser transacts with such
a broker-dealer, the broker-dealer's policies and procedures may
provide that it generally should seek written assurances from the
adviser that its policies and procedures are sufficient to ensure
compliance with obligations requested by the broker-dealer.
Similarly, where a custodian participates in the allocation,
confirmation, or affirmation process with such a broker-dealer, the
broker-dealer's policies and procedures may provide that it
generally should seek written assurances that the custodian would
comply with obligations requested by the broker-dealer.
---------------------------------------------------------------------------

    Second, the Commission is requiring under paragraph (b)(2) that
policies and procedures be reasonably designed to set target time
frames on trade date for completing the allocation, confirmation, and
affirmation for the transaction. As discussed above, the Commission
remains mindful that a broker-dealer may not be able to complete the
allocation, confirmation, and affirmation process on the trade date
with respect to every transaction it executes for every customer in
every circumstance. Thus, Rule 15c6-2 requires policies and procedures
that set target time frames on trade date for completing the
allocation, confirmation, and affirmation for transactions. The broker-
dealer must also enforce its policies and procedures, including those
related to target time frames, for the range of transaction and
customer types it serves, as well as the range of systems and
operational processes it might employ. For example, for highly
automated transactions with high volume customers with direct control
over their securities located in the same time zone, reasonably
designed policies and procedures would set target time frames for
completing the allocation, confirmation, and affirmation of the
transaction very close in time to trade execution (i.e., as soon as
technologically practicable). For transactions that are more complex,
such as those where a customer or its agent operates in other time
zones or jurisdictions, or a separate custodian maintains securities or
cash accounts on the customer's behalf, a broker-dealer may consider
how to structure the time frames to accommodate the level of effort
that will be necessary to complete the allocation, confirmation, and
affirmation. Pursuant to Rule 15c6-2(b)(1), reasonably designed
policies and procedures would be able to categorize the range of
transactions and customer relationships that it has established and
estimate the length of time it takes to complete each of the
allocation, confirmation, and affirmation to set its target time
frames. As discussed in Part III.B.1, a broker-dealer is required to
enforce its policies and procedures, meaning that it is obligated to
design its systems and commit the necessary resources to ensure that it
can comply with its own policies and procedures under the rule.
    Third, the Commission is requiring under paragraph (b)(3) of Rule
15c6-2 that policies and procedures be reasonably designed to describe
the procedures that the broker-dealer will follow to ensure the prompt
communication of trade information, investigate any discrepancies in
trade information, and adjust trade information to help ensure that the
allocation, confirmation, and affirmation can be completed by the
target time frames on trade date. Although target time frames will not
always be met, and although affirmations will not always be complete on
trade date, a broker-dealer is required to enforce its policies and
procedures under Rule 15c6-2, and so reasonably designed policies and
procedures would need to ensure that an action fully within the broker-
dealer's own control is not preventing the completion of the
allocation, confirmation, or affirmation for the transaction. Thus,
paragraph (b)(3) of the rule requires that policies and procedures lay
out the ex ante steps that the broker-dealer will take to promptly
communicate trade information, as well as to investigate discrepancies
and adjust trade information in response to information the broker-
dealer receives.
    Fourth, the Commission is requiring under paragraph (b)(4) of Rule
15c6-2 that policies and procedures be reasonably designed to describe
how the broker-dealer plans to identify and address delays if another
party, including an investment adviser or a custodian, is not promptly
completing the allocation or affirmation for the transaction, or if the
broker-dealer experiences delays in promptly completing the
confirmation. As with paragraph (b)(3) of the rule, the purpose of
paragraph (b)(4) is to ensure, to the greatest extent possible, that
the broker-dealer is not the source of delay in completing the
allocation, confirmation, and affirmation process. As such, pursuant to
paragraph (b)(4), the broker-dealer should establish ex ante the steps
that it would take in attempting to obtain an allocation or affirmation
from its customer or the other relevant parties to the transaction
(such as investment advisers or custodians). In the Commission's view,
broker-dealers generally should take reasonable steps to escalate
issues with their customers, or the other relevant parties acting on
their customers' behalf, to resolve issues and meet the target time
frames set forth in the broker-dealer's policies and procedures. In
addition, the broker-dealer's policies and procedures generally should
identify the circumstances under which a broker-dealer may experience
delays in promptly completing the confirmation and what steps it would
take to resolve the delay. In addition, because a broker-dealer is
required to enforce its policies and procedures, the Commission
believes that it should consider having policies and procedures that
explain what efforts it would take to resolve recurring problems,
particularly if they recur with respect to one particular counterparty,
customer, or custodian that, for example, routinely fails to meet the
broker-dealer's targets.
    Finally, the Commission is requiring under paragraph (b)(5) of Rule
15c6-2 that policies and procedures be reasonably designed to measure,
monitor, and document the rates of allocations, confirmations, and
affirmations completed within the target time frames established under
paragraph (b)(2) of the rule, as well as the rates of allocations,
confirmations, and affirmations completed as soon as technologically
practicable and no later than the end of trade date. The purpose of
this requirement is to ensure that each broker-dealer is taking steps
to identify when allocations, confirmations, and affirmations are
completed, whether those completed actions occurred within the target
time frames established pursuant to paragraph (b)(2), and if not,
whether those allocations, confirmations, and affirmations were
completed on trade date. In designing its policies and procedures, a
broker-dealer generally should consider defining what operational
processes and time frames would enable a transaction to be completed as
soon as technologically practicable, so that a broker-dealer can assess
the rate of transactions that are allocated, confirmed, and affirmed as
soon as technologically practicable on trade date. While Rule 15c6-2
does not require that same-day affirmation occur for every transaction
that a broker-dealer executes and settles, for policies and procedures
to be effective, the broker-dealer generally should have a sense for
how well its policies and procedures ensure the completion of the
allocation, confirmation, and affirmation process as soon as
technologically practicable and no later than the end of trade date.
Metrics developed in response to paragraph (b)(5) generally should be
used by the broker-dealer to identify and assess the circumstances
under which allocations, confirmations, and affirmations are less
likely to be achieved as soon as technologically practicable and no
later than the end of trade date so that policies and procedures are
updated and revised over time with improvements. This would help ensure
that the broker-dealer is effectively maintaining and enforcing its
policies and procedures, as required by the rule.

4. Use of Defined Terms Other Than ``Customer''
    The Commission has previously discussed modifications to Rule 15c6-
1(a) to address concerns about use of the term ``customer'' in the
rule. After considering the comments regarding definitions of other
terms discussed in Part III.B.3, the Commission continues to believe
that the terms ``allocation,'' ``confirmation,'' ``affirmation,'' and
``end of the day on trade date,'' are widely used by the industry and
are sufficiently understood to facilitate compliance with the
rule.\290\ The T+1 Proposing Release explained the commonly understood
meanings of these terms.\291\ Importantly, the specific application of
these concepts may vary in different operational arrangements, and
ultimately the parties to a transaction must all share a common
understanding of their meaning to effectively complete the allocation,
confirmation, or affirmation process and the settlement of the
transaction. Therefore, the Commission is not revising Rule 15c6-2 to
define the terms ``allocation,'' ``confirmation,'' ``affirmation,''
``end of the day on trade date,'' or ``trade'' for purposes of the
rule.
---------------------------------------------------------------------------

    \290\ See T+1 Proposing Release, supra note 2, at 10453-54.
    \291\ See id.
---------------------------------------------------------------------------

    When a broker-dealer will use written agreements under Rule 15c6-
2(a)(1), the Commission believes that the parties generally should
retain discretion to negotiate terms and expectations that are
consistent with their specific operational arrangements and processes,
and such negotiations will be most effective without defining terms
that, when they do vary in their meaning, do so because they have been
defined in the context of the operational arrangements established to
facilitate the affirmation and settlement of the trade. When a broker-
dealer determines to establish, maintain, and enforce policies and
procedures consistent with Rule 15c6-2(a)(2), the broker-dealer may
choose to define these terms, and any other terms relevant to the same-
day affirmation objective, either in coordination with the relevant
parties to the written agreement or in its policies and procedures, to
help ensure that all the relevant parties have a shared understanding
of these generally understood terms.
5. No Requirement To Link Settlement Instructions to Affirmations
    Regarding the comment discussed in Part III.B.2, the Commission is
declining to modify Rule 15c6-2 to require that the sending of
settlement instructions be linked to completion of the affirmation. As
first discussed in the T+1 Proposing Release, the Commission believes
that same-day affirmation reduces the likelihood of exceptions or other
processing errors that can prevent a transaction from achieving timely
settlement.\292\ While completing the affirmation on trade date is an
indicator that a trade is ready for settlement, it does not necessarily
mean that the trade can or will settle on a timely basis. For example,
the relevant parties to the transaction may still need to take
additional steps to facilitate settlement, such as ensuring that
securities and funds are available in the relevant accounts, after the
affirmation has been received. Accordingly, the Commission believes
that it may not be appropriate in every circumstance to link the
sending of settlement instructions with the receipt of an affirmation
because this would not necessarily accommodate taking of these
additional steps necessary to ensure timely settlement. Nonetheless,
the Commission has a strong interest in advancing the objective of
straight-through processing,\293\ and one effect of increasing the
adoption of straight-through processing techniques over time may be
that, for certain transactions, the parties may determine to link the
sending of settlement instructions with the submission of a completed
affirmation to facilitate the efficient and timely settlement of the
transaction without unnecessary manual intervention.\294\
---------------------------------------------------------------------------

    \292\ See T+1 Proposing Release, supra note 2, at 10454.
    \293\ See infra Part V (discussing the importance of advancing
the objective of straight-through processing and adopting new Rule
17Ad-27).
    \294\ See infra Part V.C.1 (discussing the relationship between
policies and procedures for straight-through processing at CMSPs and
the use of manual processes to complete the settlement of securities
transactions).
---------------------------------------------------------------------------

    In addition, the Commission understands that the customer or the
customer's custodian generally retains discretion to determine under
what circumstances it is appropriate to link the transmission of
settlement instructions to the receipt of an affirmation. The
Commission is mindful that Rule 15c6-2 only applies to broker-dealers,
and, as such, the Commission believes that the linking of settlement
instructions with the completion of the affirmation would likely
require the cooperation of the custodian in many cases. For this
reason, the Commission is not modifying the rule to include a
requirement for linking the transmission of settlement instructions to
the receipt of an affirmation. Nonetheless, a broker-dealer could,
either in its written agreements or in its policies and procedures, set
parameters for engaging with its customer or its customer's custodian
for the linking of settlement instructions to the completion of the
affirmation.

IV. Advisers Act Rule 204-2--Investment Adviser Recordkeeping

A. Proposed Amendments to Rule 204-2

    Under the Commission's proposed Rule 15c6-2, for contracts where
parties agreed to engage in an allocation, confirmation, or affirmation
process, a broker-dealer would have been prohibited from effecting or
entering into a contract for the purchase or sale of certain securities
on behalf of a customer unless it entered into a written agreement with
the customer that required the allocation, confirmation, affirmation,
or any combination thereof to be completed as soon as technologically
practicable and no later than the end of the day on trade date in such
form as may be necessary to achieve settlement in compliance with
proposed Rule 15c6-1(a). To the extent that investment advisers were
party to these agreements, the Commission would have required the
adviser to retain related records.\295\ Specifically, the Commission
proposed to amend Rule 204-2 under the Advisers Act by adding a
requirement that if the adviser is a party to a contract under proposed
Rule 15c6-2, it must make and keep records of each confirmation
received, and any allocation and each affirmation sent, with a date and
time stamp for each allocation (if applicable) and affirmation that
indicates when the allocation or affirmation was sent to the broker or
dealer.\296\
---------------------------------------------------------------------------

    \295\ See T+1 Proposing Release, supra note 2, at 10456
(discussing proposed Rule 204-2(a)(7)(iii)).
    \296\ Id.
---------------------------------------------------------------------------

B. Comments

    While commenters generally did not oppose the recordkeeping
requirement regarding confirmations, allocations, and affirmations, a
number of commenters suggested certain modifications or clarifications.
One commenter opposed proposed Rule 15c6-2's contract requirement but
nonetheless supported the recordkeeping of allocations, confirmations,
and affirmations, stating that ``such recordkeeping, coupled with the
amendments to the settlement cycle rule, should suffice to achieve the
Commission's policy objectives without imposing additional burdensome

documentation requirements.'' \297\ Another commenter sought
clarification regarding an adviser's ability to rely on third parties
to meet its recordkeeping obligations for allocations, confirmations,
and affirmations.\298\ One commenter objected to the proposed
amendments to Rule 204-2 on the grounds that neither they, nor proposed
Rule 15c6-2, were necessary for the transition from to T+2 to T+1 and
should not be adopted.\299\
---------------------------------------------------------------------------

    \297\ ICI Letter, supra note 16, at 5 n.15.
    \298\ See IAA April Letter, supra note 16, at 5-6.
    \299\ See Fidelity Letter, supra note 16, at 5.
---------------------------------------------------------------------------

C. Final Rule and Discussion

    The Commission is amending the investment adviser recordkeeping
rule to require registered investment advisers to make and keep records
of confirmations they receive and of allocations and affirmations they
send or receive for any transaction that is subject to the requirements
of Rule 15c6-2(a).\300\ Specifically, the Commission is amending Rule
204-2(a)(7)(iii) under the Advisers Act to require investment advisers
registered or required to be registered under section 203 of the
Advisers Act to make and keep true, accurate and current certain
records with respect to any transaction that is subject to the
requirements of Rule 15c6-2(a), specifically those transactions where a
broker-dealer engages in the allocation, confirmation, or affirmation
process with another party or parties to achieve settlement of a
securities transaction that is subject to the requirements of Sec.
240.15c6-1(a). The required records include each confirmation received,
and any allocation and each affirmation sent or received, with a date
and time stamp for each allocation and affirmation that indicates when
the allocation and affirmation was sent or received. As with other
records required under Rule 204-2(a)(7), advisers will be required to
keep originals of written confirmations received, and copies of all
allocations and affirmations sent or received, but may maintain records
electronically if they satisfy certain conditions.\301\ The final
amendments to Rule 204-2 largely reflect, with certain modifications,
the approach in the Proposal.
---------------------------------------------------------------------------

    \300\ See Rule 204-2(a)(7)(iii).
    \301\ See Rule 204-2(a)(7) (requiring making and keeping
originals of all written communications received and copies of all
written communications sent by an investment adviser relating to the
records listed thereunder); but see Rule 204-2(g) (permitting
advisers to maintain records electronically if they establish and
maintain required procedures).
---------------------------------------------------------------------------

    Requiring the retention of these records is important for the
Commission staff's use in its regulatory and examination program and
will be helpful to monitor the transition from T+2 to T+1. The
Commission disagrees with a commenter that argued the proposed
amendments to Rule 204-2 and proposed Rule 15c6-2 are not necessary for
the transition from to T+2 to T+1. The Commission believes that the
timing of communicating allocations to the broker or dealer is a
critical pre-requisite to help ensure that confirmations can be issued
in a timely manner, and affirmation is the final step necessary for an
adviser to acknowledge agreement on the terms of the trade or alert the
broker or dealer of a discrepancy. The Commission believes the
recordkeeping requirements for investment advisers should help
establish that obligations of the various parties involved in the
settlement process related to achieving a matched trade have been met.
Moreover, the amendments to Rule 204-2 are intended to reduce risk
following the transition to T+1 by improving affirmation rates.
    The final amendments to Rule 204-2 apply the new recordkeeping
requirements to all registered advisers for any transaction that is
subject to the requirements of Rule 15c6-2(a). Although the proposed
recordkeeping requirements would have applied to any registered adviser
that is a party to a contract under proposed Rule 15c6-2, final Rule
15c6-2 includes a second ``policies and procedures'' option for a
broker-dealer engaging in a transaction subject to Rule 15c6-1(a).
Despite this change, paragraph (a) of the final Rule 15c6-2 applies to
the same subset of transactions to which proposed Rule 15c6-2 would
have applied, and, accordingly, the final amendments are designed to
keep the scope of the final recordkeeping requirements the same as
proposed.\302\ The Commission believes that requiring registered
advisers to make and keep records of confirmations received, and
allocations and affirmations sent or received with respect to these
transactions supports the Commission's policy objectives to ensure that
the transaction process is completed and trades timely settle on T+1.
In addition, instead of requiring advisers to make and keep copies of
allocations or affirmations sent and date and time stamps showing when
they were sent to the broker or dealer, as proposed, the final rule
will include allocations and affirmations that are sent or received and
require date and time stamps showing when they were sent or received to
clarify the rule text from the proposal. Finally, instead of requiring
``a date and time stamp for each allocation (if applicable)'' (emphasis
added), the Commission removed ``if applicable'' to clarify that a date
and time stamp should be included for each allocation sent. These
changes are designed to cover circumstances where an adviser receives a
copy of allocations or affirmations from a third party, such as a
custodian or sub-adviser or other party involved in the transaction,
and require a date and time stamp in each case.
---------------------------------------------------------------------------

    \302\ Consistent with the T+1 Proposing Release, we estimate
that certain investment advisers registered with the Commission will
not be required to make and keep the required records because they
do not have any institutional advisory clients and therefore will
not facilitate transactions subject to Rule 15c6-2(a). See T+1
Proposing Release, supra note 2, at nn.424-425 and related text
(estimating that certain advisers registered with the Commission
would not be required to make and keep the proposed required records
because they do not have any institutional advisory clients and
therefore would not enter into a contract under proposed Rule 15c6-
2).
---------------------------------------------------------------------------

    Based on staff experience as discussed in the T+1 Proposing
Release, as well as the comments received, the Commission believes that
majority of advisers that place the order for execution--or sub-
advisers or other third parties acting on an adviser's behalf--make and
keep originals and/or electronic copies of allocations, confirmations,
and affirmations sent or received.\303\ Advisers, which have varied
trade allocation processes, often allocate trades through the use of
internal systems, portfolio management systems and order management
systems.\304\ Some advisers, however, may not make and keep these
records or may only retain them on paper. In many cases, affirmation is
performed by the asset owner's custodian (or its prime broker) on the
asset owner's behalf.\305\ In response to a comment received, the
Commission is confirming that an adviser may rely on a third party to
make and keep the required records, although using a third party to
make and keep records does not reduce an adviser's obligations under
Rule 204-2. As discussed above, in recognition of the role of third
parties, the Commission is requiring advisers to keep records of
allocations or affirmations sent or received, in the event that the
adviser

receives a copy of such records from a third party.
---------------------------------------------------------------------------

    \303\ See T+1 Proposing Release, supra note 2, at 10457; see
also IAA April Letter, supra note 16, at 4-7; ICI Letter, supra note
16, at 5; ISITC Letter, supra note 29, at 2.
    \304\ See IAA April Letter, supra note 16, at 4.
    \305\ See DTCC ITP Forum Remarks, supra note 264 (stating that
up to 70% of institutional trades are affirmed by custodians); IAA
April Letter, supra note 16, at 4 (agreeing that 70% of adviser
trades are affirmed by the custodian, consistent with information
received from its members); see also ICI Letter, supra note 16, at
5; ISITC Letter, supra note 29, at 2.
---------------------------------------------------------------------------

    As stated in the T+1 Proposing Release, based on staff experience,
the Commission believes many records are already consistently date and
time stamped to the nearest minute using either a local time zone or a
centralized time zone, such as coordinated universal time, or ``UTC.''
\306\ The final amendments to Rule 204-2 require advisers to time and
date stamp each allocation and affirmation.
---------------------------------------------------------------------------

    \306\ T+1 Proposing Release, supra note 2, at 10456-57.
---------------------------------------------------------------------------

    The three commenters that discussed the proposed time and date
stamping requirement for allocations and affirmations did not oppose
the proposed time and date stamping requirements, although some sought
clarification regarding how the requirement would be applied in
practice.\307\ One commenter observed that storing timestamps of
processing events such as the generation or receipt of messages is a
good practice that provides opportunities to analyze specific points of
latency and contributes to an accurate audit trail.\308\ This commenter
also stated that electronic communication protocols inevitably include
storage of complete event history with timestamps. Another commenter,
while stating that time stamps are employed today, interpreted our
proposal to require a single, industry-approved time stamp format based
on a common clock, indicating such an approach would be
challenging.\309\ This commenter raised other questions, such as what
is end of trade date in regard to time stamping, and suggested that
timestamps for processes that occur post-midnight ET may incorrectly
identify properly affirmed trades as non-compliant.\310\ Another
commenter suggested that the T+1 Proposing Release significantly
underestimated the system and process changes that will be required and
that the proposed requirement for advisers to timestamp certain trading
records would add further complexity and costs to managers'
efforts.\311\
---------------------------------------------------------------------------

    \307\ See ISITC Letter, supra note 29, at 4-5; FIX Trading
Letter, supra note 218, at 4; AIMA Letter, supra note 29, at 2.
    \308\ FIX Trading Letter, supra note 218, at 4.
    \309\ ISITC Letter, supra note 29, at 4-5.
    \310\ Id. at 4-5 (noting that such considerations include the
agreement on the time stamp format, evidence of time stamps (for
compliance or audit purposes), time differences due to multiple
systems and participants resulting in time stamps that may not
perfectly match, and new processes needed to govern resolution of
time stamps that could delay trade processing when all pertinent
trade details are otherwise correct and agreed).
    \311\ See AIMA Letter, supra note 29, at 2.
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    Although the Commission previously stated in the T+1 Proposing
Release that the adviser generally should time and date stamp records
of allocations and affirmations to the nearest minute,\312\ the
Commission agrees with commenters that imposing more prescriptive
requirements such as an agreed time stamp could result in additional
challenges. The Commission is not adopting any such requirements for
the time and date stamp format in Rule 204-2 or requiring that the
format used be based on a common clock. This approach is designed to
provide flexibility to date and time stamp allocations and affirmations
in accordance with existing processes and industry practices, while
still providing information about when allocations or affirmations were
sent or received. This approach also avoids the need for prescriptive
guidance about what end of trade date means, requiring everyone to
handle different time zones in the same way, and any related costs
incurred to follow such guidance.
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    \312\ See T+1 Adopting Release, supra note 2, at 10456.
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    Requiring these records, including a time and date stamp of all
affirmations and allocations (but not confirmations), will aid the
Commission staff in preparing for examinations of investment advisers
and assessing adviser compliance with Rule 204-2 and ultimately help
ensure that trades involving such advisers will timely settle on T+1.
In addition, this requirement will help advisers research and remediate
issues that may cause delays in the issuance of allocations and
affirmations and improve their timeliness overall. Requiring these
records also will help advisers establish that they have timely met
contractual obligations, if applicable, or any requirements broker-
dealers impose in light of their compliance obligations under final
Rule 15c6-2.

V. Exchange Act Rule 17Ad-27--Requirement for CMSPs To Facilitate
Straight-Through Processing

A. Proposed Rule 17Ad-27

    In the T+1 Proposing Release, the Commission proposed new Rule
17Ad-27 to establish new requirements for certain clearing agencies
acting as CMSPs.\313\ The Commission proposed these requirements to
improve the efficiency of institutional trade processing, and better
position CMSPs to provide services that would not only reduce risk
generally, but also help facilitate an orderly transition to a T+1
standard settlement cycle, as well as potential further shortening of
the settlement cycle in the future.\314\ CMSPs have become increasingly
critical to the functioning of the securities market over the past
twenty years, due in part to the rising volume of securities
transactions for which CMSPs provide matching and other services.\315\
A shortened settlement cycle may lead to expanded use of CMSPs, as well
as an increased focus on enhancing the services and operations of the
CMSPs themselves.\316\ While the introduction of new technologies and
streamlined operations such as those offered by CMSPs have improved the
efficiency of post-trade processing over time, the Commission stated in
the T+1 Proposing Release that more could be done to facilitate further
improvements.\317\ Specifically, the Commission explained that
eliminating the use of tools that encourage or require manual
processing, alongside the continued development and implementation of
more efficient automated systems in the institutional trade processing
environment, is essential to reducing risk and costs to ensure the
prompt and accurate clearance and settlement of securities
transactions, particularly in a T+1 environment.\318\
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    \313\ See id. at 10457. CMSPs are clearing agencies as defined
in section 3(a)(23) of the Exchange Act, and as such, are required
to register as a clearing agency or obtain an exemption from
registration. The Commission has currently exempted three CMSPs from
the registration requirement. The Commission also has adopted rules
that apply to both registered and exempt clearing agencies,
including CMSPs operating pursuant to an exemption from
registration. See, e.g., Regulation Systems Compliance and
Integrity, Exchange Act Release No. 73639 (Nov. 19, 2014), 79 FR
72252 (Dec. 5, 2014) (``Regulation SCI Adopting Release'').
    \314\ See T+1 Proposing Release, supra note 2, at 10458.
    \315\ See id.; see also Press Release, DTCC, Over 1,800 Firms
Agree to Leverage U.S. Institutional Trade Matching Capabilities in
DTCC's CTM (Oct. 12, 2021), https://www.dtcc.com/news/2021/october/12/over-1800-firms-agree-to-leverage-dtccs-ctm; DTCC's Trade
Processing Suite Traffics One Billion Trades, Traders Magazine (Feb.
13, 2017), https://www.tradersmagazine.com/departments/clearing/dtccs-trade-processing-suite-traffics-one-billion-trades/.
    \316\ See T+1 Proposing Release, supra note 2, at 10458.
    \317\ See id. at 10457.
    \318\ See id. at 10458.
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    As proposed, Rule 17Ad-27 was comprised of two requirements. First,
the proposed rule would require a clearing agency that provides central
matching services for transactions involving broker-dealers and their
customers (i.e., CMSPs) to establish, implement, maintain and enforce
policies and procedures to facilitate STP for transactions involving
broker-dealers

and their customers.\319\ Second, the proposed rule would require a
CMSP to submit to the Commission every twelve months a report that
describes (i) the CMSP's current policies and procedures for
facilitating straight-through processing; (ii) the CMSP's progress in
facilitating straight-through processing during the twelve month period
covered by the report; and (iii) the steps the CMSP intends to take to
facilitate and promote STP during the twelve month period following the
period covered by the report.\320\
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    \319\ See id. at 10458-59.
    \320\ See id. at 10459-60.
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    Proposed Rule 17Ad-27 would require a CMSP to submit the annual
report to the Commission using EDGAR, and to tag the information in the
report using structured XBRL.\321\ The Commission stated in the
proposal that this annual report would be made publicly available on
the Commission's website to enable the public to review and analyze
progress on achieving straight-through processing, identify potential
improvements to further facilitate straight-through processing, and
provide the Commission and the public with a centralized, publicly
accessible electronic database for the reports, facilitating the use of
the reported data on straight-through processing.\322\ The proposing
release also discussed the Commission's preliminary view as to its
intended understanding of various aspects of the two main requirements
under proposed Rule 17Ad-27, including terms used in the rule
text.\323\
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    \321\ See id. at 10459. This requirement would be implemented by
including a cross-reference to Regulation S-T in proposed Rule 17Ad-
27, and by amending Regulation S-T to include the proposed straight-
through processing reports. Pursuant to 17 CFR 232.301 (``Rule 301
of Regulation S-T''), the EDGAR Filer Manual is incorporated by
reference into the Commission's rules. In conjunction with the EDGAR
Filer Manual, Regulation S-T governs the electronic submission of
documents filed with the Commission.
    \322\ See id.
    \323\ For example, the commonly used term ``straight-through
processing'' was explained in the T+1 Proposing Release as to
generally refer to processes that allow for the automation of the
entire trade process from trade execution through settlement without
manual intervention. Id. at 10458 (citing to Securities Industry
Association (SIA), T+1 Business Case Final Report (July 2000) (``SIA
Business Case Report''), https://www.sifma.org/wp-content/uploads/2017/05/t1-business-case-final-report.pdf).
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B. Comment Letters From DTCC ITP

    The Depository Trust & Clearing Corporation (``DTCC''), in
conjunction with DTCC ITP LLC and DTCC ITP Matching (US) LLC,
(collectively ``DTCC ITP'') submitted two comment letters discussing
proposed Rule 17Ad-27,\324\ and these were the only comments received
by the Commission that extensively discussed proposed Rule 17Ad-
27.\325\ DTCC ITP Matching (US) LLC (``ITP Matching US'') operates one
of three entities that to date have received from the Commission an
exemption from registration as a clearing agency to operate as a
CMSP.\326\ ITP Matching US currently offers two services to facilitate
post-trade processing of institutional trades: (i) TradeSuite ID, an
electronic trade confirmation (``ETC'') service; \327\ and (ii) a
central trade matching service (``CTM'') for securities transactions
(in its capacity as a CMSP).\328\
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    \324\ See DTCC ITP April Letter, supra note 216; letter from
Matthew Stauffer, Managing Director and Head of DTCC Institutional
Processing, DTCC (Sept. 30, 2022) (``DTCC ITP September Letter'').
DTCC ITP Matching (US) LLC is a wholly-owned subsidiary of DTCC ITP
LLC, a Delaware limited liability company controlled by its sole
member, DTCC. DTCC is the parent company of The Depository Trust
Company, the National Securities Clearing Corporation, and the Fixed
Income Clearing Corporation, all registered with the Commission as
clearing agencies under section 17A of the Exchange Act.
    \325\ In addition, the Commission received three comment letters
from The Options Clearing Corporation (``OCC''), State Street, and
the FIX Trading Community that referenced proposed Rule 17Ad-27.
Like DTCC ITP, OCC recommended including ``reasonably designed'' in
the text of any rule requiring a ``registrant'' to maintain policies
and procedures. See OCC Letter, supra note 15, at 3. State Street
supported measures intended to enhance STP at CMSPs, including the
annual publication of data on matching rates and other similar
efficiency metrics. See State Street Letter, supra note 15, at 4.
FIX supported efforts to retire manual mechanisms while ensuring
that electronic bilateral and central matching mechanisms that
support STP are permitted. See FIX Trading Letter, supra note 227,
at 4. Given the brief and general nature of these comments, and the
fact that they are aligned with comments also made by DTCC ITP, the
Commission has focused its discussion for the remainder of Part V on
the substantive points raised by DTCC ITP.
    \326\ See Order Granting Exemption from Registration as a
Clearing Agency for Global Joint Venture Matching Services--U.S.,
LLC, Exchange Act Release No. 33188 (Apr. 17, 2001), 66 FR 20494,
(Apr. 23, 2001) (``GJVMS Exemption Order''); Order Approving
Application for an Exemption from Registration as a Clearing Agency
for Bloomberg STP LLC and SS&C Techs, Inc., Exchange Act Release No.
76514 (Nov. 24, 2015), 80 FR 75388, 75413 (Dec. 1, 2015)
(``Bloomberg STP and SS&C Techs Exemption Order''). DTCC ITP
Matching US is formerly known as GJV Matching Service--US, LLC.
    \327\ An ETC allows market participants, such as broker-dealers,
investment managers, hedge funds, banks, custodians, and agents, to
coordinate domestic post-trade activities, generally by providing
trade counterparties with the ability to electronically confirm and
affirm certain details of their trades. This automated process
eliminates manual and verbal communications in the confirmation and
affirmation process, thereby reducing risks and facilitating shorter
settlement timeframes. For a description of ETCs generally, see
GJVMS Exemption Order, supra note 326, at 20496.
    \328\ See DTCC ITP April Letter, supra note 216, at 2.
Generally, TradeSuite ID allows broker-dealers, buy-side firms,
custodians, and agents to confirm and affirm elements of their
trades in equity and fixed income securities through an automated
post-trade process. CTM allows broker-dealers and buy-side firms to
electronically match block trades, allocations, and confirmations in
trades involving a wide variety of asset classes and provides a
trade allocation and acceptance service that communicates trade and
allocation details between parties. See id. at 2-3.
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    While DTCC ITP generally supported ``the Commission's approach to
facilitating T+1 through the promotion of same-day affirmation, STP and
other enhancements in the processing of institutional trades at CMSPs
as core building blocks to a successful transition to T+1,'' DTCC ITP
raised several concerns about specific aspects of the proposed rule and
requested specific modifications to the proposed rule text. DTCC ITP
stated that these changes would provide additional flexibility and
clarity, and better position CMSPs to achieve the stated goals of the
proposed rule.\329\ Specifically, and as detailed below, DTCC ITP
expressed in its comment letters the following concerns.
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    \329\ For example, DTCC ITP supported the concept of requiring
policies and procedures and submission of an annual report but
suggested specific recommendations regarding what should be included
in the annual report. Further, it supported not ``prescribing'' the
meaning of key terms and concepts used in the rule text, such as
``allocation,'' ``confirmation,'' ``affirmation,'' and ``customer,''
or stipulating separate requirements and deadlines for each of these
processing functions or specifying separate requirements and
deadlines for each processing step. See id. at 3-4.
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1. Amend Policies and Procedures Requirement To Add ``Reasonably
Designed'' to the Current Text
    In its initial comment letter, DTCC ITP suggested that the
requirement in proposed Rule 17Ad-27 for a CMSP to establish,
implement, maintain, and enforce policies and procedures should be
amended so that a CMSP's policies and procedures are ``reasonably
designed'' to facilitate STP.\330\ The commenter provided a number of
reasons to support the amendment.\331\ First, in the commenter's view,
the

proposed rule is an inflexible standard that places ``all
responsibility'' for facilitating STP on the CMSPs, and as such, is
inconsistent with the Commission's view of STP generally, and with
regard to CMSPs specifically, will undermine the stated goal of
facilitating STP.\332\ Further, DTCC ITP expects that the proposed text
would result in CMSPs avoiding innovation of new technologies that
promote STP because of liability concerns.\333\ In contrast, DTCC ITP
stated, amending the rule text to reflect a ``reasonably designed
standard'' would make the rule consistent with the Commission's stated
policy goals.
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    \330\ See id. at 4. The Commission described STP in the T+1
Proposing Release as generally referring to the processes that
allows for automation of the entire trade process from trade
execution through settlement without manual intervention. See T+1
Proposing Release, supra note 2, at 10458. In the context of
institutional trade processing, STP occurs when a market participant
or its agent uses the facilities of a CMSP to enter trade details
and completes the trade allocation, confirmation, affirmation, and/
or matching processes without manual intervention. See DTCC ITP
April Letter, supra note 216, at 5.
    \331\ As discussed further in Part V.C.1 below, the Commission
concurs with DTCC ITP's general suggestion that amending the
policies and procedures requirement to add ``reasonably designed''
is appropriate, but for reasons other than those cited by DTCC ITP
in its comment letter. See DTCC ITP April Letter, supra note 216, at
4.
    \332\ See id. at 5. Because the obligation to develop policies
and procedures to facilitate STP, as described in proposed Rule
17Ad-27 applies to CMSPs only, the scope of the policies and
procedures would only include those activities that are within the
control of the CMSP, which in turn would bind only those entities
that are in contractual privity with the CMSP. Moreover, the
Commission proposed a number of other rules that required other
market participants, namely broker-dealers and investment advisers,