Finance
The settlement of stock trading on Wall Street will be moved to just one day
The New York Stock Exchange in New York, March 28, 2023.
Victor J. Blue | Bloomberg | Getty Images
Years of work on Wall Street to increase the pace of trading will be put to the test this week. If all goes well, most people won’t notice the difference.
From Tuesday, trades in shares and various other securities should be settled by the end of the next business day. The settlement concerns the actual exchange money for security. This so-called “T+1 settlement” is an acceleration of the previous process, which allowed for two working days.
The move is the latest evolution to make Wall Street’s plumbing more like the front end, which is increasingly moving toward trading apps and 24-hour markets.
“For ordinary investors who sell their shares on Monday, shortening the settlement cycle will allow them to receive their money on Tuesday. Shortening the settlement cycle will also help the markets because time is money and time is risk. It will plumb our market. more resilient, timely and orderly,” said Gary Gensler, chairman of the Securities and Exchange Commission said in a statement on May 21.
For most retailers, the change is expected to be seamless. Because the physical paper versions of stocks are all but extinct, most brokerage firms handle settlement automatically for their clients.
It could be trickier for big dollar trades and funds, especially those holding international equities, as not all markets align on settlement timing.
“When you start talking about larger trades, lock in liquidity. That’s where you can see the cost movements depending on the product, depending on the underlying market,” said Tim Huver, managing director of investment bank Brown Brothers Harriman.
This isn’t the first time the SEC has shortened trade settlement times; the switch from T+3 to T+2 took place in 2017. The SEC officially adopted the change to T+1 in February, although many industry experts had long considered it. expected the move.
The latest change comes after 2021’s GameStop mania put the settlement process under scrutiny. The wild swings in the so-called meme stocks caused the agreed price for transactions to differ significantly from the market price at the time the transaction was actually settled. There were also more cases of “non-delivery” or transactions where no settlement took place during that period.
The excitement around GameStop and other meme stocks has seen a resurgence in 2024. The video game retailer’s shares soared Tuesday after announcing it had raised more than $900 million through an additional stock sale.
