New York Stock Exchange, March 28, 2023.
Victor J. Blue | Bloomberg | Getty Images
Wall Street’s years-long effort to speed up trading will be tested this week. If all goes well, most people won’t notice the difference.
Starting Tuesday, trades in stocks and several other securities will need to settle by the end of the next business day. Settlement involves actual swap funds as guarantee. This so-called “T+1 settlement” is an acceleration of the previous process, which took two working days.
The move is the latest evolution in making Wall Street’s pipeline look more like the front end, which is increasingly turning to trading apps and around-the-clock markets.
“For the average investor who sold their stock on Monday, shortening the settlement cycle will allow them to get their money on Tuesday. Shortening the settlement cycle will also help the market because time is money and time is risk. This will allow our The market’s return to health is more resilient, timely and orderly,” SEC Chairman Gary Gensler said in a statement May 21st.
The change is expected to be seamless for most retail traders. Since physical versions of paper stocks are all but extinct, most brokerage firms automatically handle settlement for their clients.
This can be trickier for large U.S. dollar trades and funds, especially those holding international stocks, since not all markets are aligned on settlement timeframes.
Tim Hoover, managing director at investment bank Brown Brothers Harriman, said: “When you start talking about larger transactions and blocking liquidity, you may see costs move, depending on the product, depending on the underlying market. “
This is not the first time that the SEC has shortened the transaction settlement time. Since 2017, T+3 has been changed to T+2. .
The latest changes come after the GameStop frenzy of 2021 brought greater scrutiny to the settlement process. The wild swings in so-called meme stocks mean the agreed-upon price for a trade differs significantly from the market price at the time of actual settlement. There was also an increase in “non-delivery” or unsettled trades during this period.
Excitement surrounding GameStop and other meme stocks is picking up again in 2024.
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