United States: FINRA Proposes Rule Change To Clarify Application Of Ex-Dividend Rule For T+2 Transition

FINRA filed a proposed rule change with the SEC that would clarify the application of FINRA rules on ex-dividend dates in light of the forthcoming change to the standard settlement cycle for securities transactions.

Beginning on September 5, 2017, the standard settlement cycle for securities transactions will be shortened from three business days after the trade date ("T+3") to two ("T+2"). As a result of the change in the standard settlement cycle, the ex-dividend date (i.e., the date on or after which a security is traded without a specific dividend or distribution) for most regular securities transactions will be reduced by one day (see relevant section of FINRA Notice 17-19 detailing changes to FINRA Rule 11140). As noted by many industry members, a transition from T+3 to T+2 would cause September 7, 2017 to be a "double" settlement date for trades that occurred on September 1, 2017 under T+3 (reflecting the Labor Day holiday) and September 5, 2017 under T+2, which would result in investors who traded on either date being deemed record holders of September 7, 2017. To resolve the confusion, FINRA in coordination with the other SROs supports the proposal that September 5, 2017 shall not be an ex-dividend date. Accordingly, FINRA proposes to interpret Rule 11140(b)(1) so that the first record date to which the new ex-dividend date determination applied for "regular" distributions would be Thursday, September 7, 2017 (see chart below for the ex-dividend dates for "regular" distributions during the transition to T+2).

FINRA filed the rule change for immediate effectiveness, and requested that the SEC grant permission to implement the change immediately.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.