For investors who are used to instantly trading securities — or same-day delivery for their online purchases of groceries, electronics or books — the idea that it can take up to two full business days in the U.S. to complete a trade can leave them scratching their heads and wondering, “Why?”
While long-established rules exist for the clearing and settling process, consensus is growing that accelerating settlement will better serve market participants by reducing costs and mitigating risk. How fast and soon can this change be made? Our firm, which serves as a central clearinghouse for the U.S. capital markets, believes that two-day time frame can be cut in half within the next two years.
The current standard for settling equity trades in the U.S. is trade date plus two business days (T+2), meaning a trade executed on Monday morning must be settled by close of business on Wednesday. The transition from T+3 to T+2 in 2017 was recognized as one of the most significant changes to U.S. market structure in decades, requiring several years of coordination between market participants and regulators.
Accelerating settlement to T+1 or even T+½ must be similarly choreographed. The clearing and settlement process is a component of broader, interconnected financial markets, including derivatives, securities lending, cash borrowing and collateral processing, as well as multiple players, such as banks, 经纪人, 托管人, institutional investors, retail investors, exchanges and transfer agents.
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