The US stock market is reducing the settlement time for share trades from two days to just one, a system known as T+1. This change, last seen in Wall Street about a century ago as Bloomberg notes, is expected to reduce risk in the financial system. However, concerns have been raised about potential challenges during the transition period.
The Securities and Exchange Commission (SEC) has acknowledged that the switch to T+1 may lead to a temporary increase in settlement failures and difficulties for some market participants. To address these issues, the Securities Industry and Financial Markets Association (Sifma) has established a T+1 Command Center to identify and respond to possible problems.
Despite months of preparation by firms across the industry, there are worries about the readiness of counterparties and intermediaries. International investors may face difficulties in sourcing dollars on time, and the compressed timeline could leave less room for error correction.
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The transition is further complicated by the size and complexity of today’s market, as well as the fact that many other jurisdictions have not yet made the switch to T+1.
Two immediate tests for the new system include Wednesday’s double settlement day, where both T+2 and T+1 trades come due simultaneously, and the upcoming MSCI index rebalancing at the end of the week.
Information for this story was found via Bloomberg, and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
