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 tested this week. If all goes well, most people won’t notice a difference.
Starting Tuesday, transactions in shares and a number of other securities must be settled by the end of the next business day. The settlement involves actual swap bail money. This so-called T+1 calculation speeds up the previous process, which took two business days.
The move is the latest evolution to make Wall Street’s plumbing more like a front-end experience, which is increasingly moving toward trading apps and 24-hour markets.
“For daily 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 markets because time is money and time is risk. more sustainable, timely and orderly,” said Securities and Exchange Commission Chairman Gary Gensler. says the statement May 21st.
The changes are expected to go smoothly for most retail traders. Since physical paper versions of stocks have all but disappeared, most brokerage firms automatically handle settlements for their clients.
This can be more difficult for large dollar trades and funds, especially those holding international stocks, as not all markets are consistent on settlement dates.
“When you start talking about larger trades, lock in liquidity, that’s where you can see value changes depending on the product, depending on the underlying market,” said Tim Hoover, managing director at investment bank Brown Brothers Harriman.
This is not the first time that the SEC has reduced the settlement time for transactions: the transition to T+2 from T+3 occurred in 2017. The SEC officially adopted the transition to T+1 in February, although many industry experts had long expected the move.
The latest change comes after the GameStop mania in 2021 brought the settlement process under greater scrutiny. The wild swings in so-called meme stocks meant that the agreed upon transaction price differed significantly from the market price at the time the transaction was actually concluded. In addition, during this period, cases of “non-delivery” or transactions for which settlements did not occur became more frequent.
The hype around GameStop and other meme stocks resumed in 2024. Shares of the video game retailer rose on Tuesday after it reported it had raised more than $900 million through an additional share sale.