T + 1 inch closer after Robinhood GameStop Frenzy
What would you like to know
- DTCC has published a two-year industry roadmap to shorten the settlement cycle.
- The first indications suggest that market players are increasingly favoring the transition to T + 1.
- Shifting to a T + 1 settlement cycle will be a major undertaking, says Ken Bentsen of SIFMA.
The frenzy of trading on GameStop shares at the end of January is pushing for a move to a one-day trade settlement.
The Depository Trust & Clearing Corp. (DTCC) on Wednesday released a two-year sector roadmap to shorten the settlement cycle for U.S. stocks to one business day after trade execution, or T + 1.
Reddit GameStop’s squeeze has shed light on what is known as the “run down” T + 2 standard settlement cycle for most broker-dealer securities transactions.
âIt’s time for T + 2 to leave,â Vlad Tenev, CEO and co-founder of Robinhood Markets, said in a February 2 tweet, just days after Robinhood stopped buying GameStop and other stocks.
Robinhood’s Jan. 28 decision to restrict the purchase of GameStop and other heavily traded so-called memes stocks by retail investors was driven by regulatory requirements, and hedge funds Melvin Capital and Citadel Securities played no role. in that decision, Tenev told lawmakers in February. 18.
âRobinhood Securities put the restrictions in place to meet increased regulatory filing requirements [from clearinghouses], not to help hedge funds, âTenev told members of the House financial services committee.
In his Wednesday newspaper, “Moving Forward Together: Leading the Industry to Accelerated Settlement, “DTCC highlights the immediate benefits of moving to a T + 1 settlement cycle, including cost savings, reduced market risk and lower margin requirements, as well as the company’s plans to galvanize the support needed for the project through a wide range of market participants.
Former SEC chairman Clayton steps in
Former SEC Chairman Jay Clayton agreed at DealBook’s DC Policy event on Tuesday that “the time has come for this. [trade settlement] period to be shortened. There are costs for this period which is two days. â¦ There is the time value of money, the amount you need to fund those two days of an open position and the uncertainty.
Clayton added: âThere’s no reason with the technology we have today that it can’t be shortened significantly, that it’s about what people call T + 0â¦ but it can be shortened from significantly. “
Switching to T + 1
DTCC – which does not have the regulatory or legal authority to unilaterally change the settlement cycle – said in its paper that to move to T + 1, “industry participants must align and agree to shorten the settlement cycle by implementing the necessary operational and business changes, and regulators need to be involved.
“DTCC continues to take a leadership position in shortening the settlement cycle to T + 1, similar to the role it played in 2017 to move to T + 2,” the company said.