Same-Day Affirmation

With the standard settlement cycle now one business day, Marchbank Securities is reviewing how it handles trades for its institutional customers. Under SEC Rule 15c6-2, the firm must either have a written agreement with each such customer or establish written policies reasonably designed to ensure that allocations, confirmations and affirmations are completed:

1. A.By the close of business on the business day following the tradeThis is settlement day itself. Completing the affirmation process then would leave no time to resolve breaks before settlement.
2. B.As soon as technologically practicable and no later than the end of the day on trade dateCorrect. Rule 15c6-2 puts allocation, confirmation and affirmation on trade date so that settlement can occur the next business day.
3. C.Within two business days of the trade, matching the previous settlement cycleThe two-day cycle ended in May 2024. Rule 15c6-2 was adopted precisely to move these steps forward to trade date.
4. D.By noon on the business day following the tradeThat timetable belongs to the old two-day cycle. Under Rule 15c6-2 the process must be finished on trade date.

Why: Rule 15c6-2 exists because a one-day settlement cycle leaves no room for next-day cleanup of institutional trade details. The firm must ensure the allocation, confirmation and affirmation process is completed as soon as technologically practicable and in any event no later than the end of the day on trade date, so the trade is ready to settle the following business day.

Rutledge Pension Fund executes a large block through Halsey Securities on a Tuesday. Under the shortened settlement cycle, SEC Rule 15c6-2 addresses the post-trade processing of institutional transactions. What does that rule require of the broker-dealer?

1. A.It must have a written agreement with the institutional customer, or written policies and procedures reasonably designed, to complete allocation, confirmation and affirmation as soon as technologically practicable and no later than the end of trade date.Correct. The rule pushes the entire institutional post-trade chain onto trade date.
2. B.Affirmation must be completed no later than noon on settlement date.Wrong. The deadline is the end of trade date, well before settlement.
3. C.The rule applies only to municipal securities transactions with institutional accounts.Wrong. It applies broadly to institutional transactions subject to the settlement cycle rule.
4. D.No affirmation is required for institutional trades; the confirmation the broker-dealer sends is sufficient by itself.Wrong. Affirmation by the institutional customer or its agent is the step the rule is designed to accelerate.

Why: Compressing settlement to one business day left almost no room for the institutional post-trade chain of allocation, confirmation and affirmation, which historically stretched into the day after trade date. Rule 15c6-2 closes that gap. A broker-dealer entering into a contract for an institutional trade must either have a written agreement with the customer, or establish written policies and procedures reasonably designed, to ensure that allocations, confirmations and affirmations are completed as soon as technologically practicable and no later than the end of the day on which the trade was executed. Without same-day affirmation, the trade cannot reliably reach the depository in time to settle.