Stock brokers look into solution for market practice behind Robinhood’s meme stock trading restrictions
- SIFMA, an industry group, told the SEC that the financial sector would benefit from a move to a “T + 1 regulation”.
- The markets operate on a two-day settlement, which Robinhood says has led to problems during the even stock craze.
- In January, Robinhood faced calls from its clearinghouse to provide additional guarantees against the deluge of transactions.
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Major brokers and banks have formed consensus on a key technical issue that led to Robinhood’s brutal trading restrictions on GameStop and AMC in January, according to a letter to the SEC.
SIFMA, a cross-industry body representing large asset managers and brokers, told the SEC that the financial industry would benefit greatly from a move to “T + 1 settlement,” where orders are executed in a single day.
SIFMA has said that every conceivable problem with the T + 1 regulation is fixable and has committed to follow up in September. SEC Chairman Gary Gensler has previously expressed support for the move, saying in May that he believes “shortening the standard settlement cycle could reduce costs and risks in our markets.”
Markets are currently operating on two days, or T + 2, a factor that Robinhood says led to financial plumbing outages at the height of the same stock craze.
The Financial Times first reported the letter.
Since settlement takes place over two days, clearing houses – which manage risk between financial institutions – require members to provide collateral based on the volume and volatility of transactions.
So in January, as unprecedented volumes of retail traders crammed into bustling stocks like GameStop and AMC, Robinhood faced calls from its clearinghouse to put in additional safeguards against the deluge of transactions.
The massive demand for collateral has forced Robinhood to put in place controversial trade restrictions – such as blocking new positions in certain stocks – and raising $ 1 billion in cash from investors, sparking a huge backlash among politicians. and investors who sniffed out a plot.
The one-day settlement would reduce warranty requirements and make the overall system more flexible, SIFMA said.