The New York Stock Exchange, in New York, March 28, 2023.
Victor J. Bleu | Bloomberg | Getty Images
Years of work on Wall Street to accelerate the pace of trading will be put to the test this week. If everything goes well, most people won’t notice the difference.
Starting Tuesday, trades in stocks and several other securities must be settled by the end of the next business day. Settlement involves the actual exchange of money for a security. This so-called T+1 regulation accelerates the previous process which provided for two working days.
The move is the latest development to make Wall Street’s plumbing more like the front end, which is increasingly skewing toward trading apps and 24-hour markets.
“For ordinary investors who sell their stocks on a Monday, shortening the settlement cycle will allow them to get their money back on Tuesday. Shortening the settlement cycle will also help the markets because time is money and time is a risk. This will make our market more resilient, timely and orderly,” Securities and Exchange Commission Chairman Gary Gensler said in a May 21 statement.
For most retail traders, the change should be a smooth one. As physical paper versions of equity shares have all but disappeared, most brokerage firms automatically handle settlement for their clients.
This could be trickier for large dollar transactions and funds, particularly those holding international stocks, as not all markets are aligned on settlement times.
“When you start talking about larger transactions, liquidity lock-ups, that’s where you can see cost movements depending on the product, depending on the underlying market,” said Tim Huver, managing director of the investment bank Brown Brothers Harriman.
This is not the first time the SEC has reduced trade settlement time, with the move from T+3 to T+2 occurring in 2017. The SEC officially adopted the change to T+1 in February, even though many industry experts had long expected this move.
The latest change comes after the GameStop craze in 2021 subjected the settlement process to greater scrutiny. The wild swings in so-called meme stocks meant that the agreed price for trades was very different from the market price at the time the trade was actually settled. Additionally, cases of “failure to deliver” or non-settled transactions did not occur during this period.
The hype around GameStop and other meme stocks has seen a resurgence in 2024. Shares of the video game retailer jumped Tuesday after revealing it had raised more than $900 million through a stock sale additional.
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