Wall Street stock trading settlement moves to just one day

New York Stock Exchange in New York, March 28, 2023.

Victor J. Blue | Bloomberg | Getty Images

Years of work on Wall Street to raise the pace of trading will be tested this week. If all goes well, most people won’t notice the difference.

Starting Tuesday, trades in stocks and many other securities must be settled by the end of the next business day. Settlement involves Actual swap From money to security. This so-called “T+1 settlement” is an acceleration of the previous process, which allowed for two business days.

The move is the latest development to make Wall Street’s plumbing business look more like the front-end, which is increasingly moving toward trading apps and 24-hour markets.

“For ordinary investors who sell their shares on Monday, shortening the settlement cycle will allow them to get their money on Tuesday. Shortening the settlement cycle will also help the markets because time is money and time is risk. This will hold our market in good stead.” More flexible, timely, and orderly,” SEC Chairman Gary Gensler said He said in a statement On May 21.

For most retailers, change is expected to be smooth. As physical paper versions of stock shares are on the verge of extinction, most brokerage firms handle settlement automatically for their clients.

It can be more difficult for large dollar trades and funds, especially those holding international stocks as not all markets align with the settlement timeframe.

“When you start talking about larger deals, block liquidity, as you may see cost movements depending on the product, depending on the underlying market,” said Tim Hoover, managing director at investment bank Brown Brothers Harriman.

This is not the first time the SEC has shortened the settlement time on trades, with the move to T+2 from T+3 in 2017. The SEC officially adopted the change to T+1 in February, though… That many industry experts had long expected this move.

The latest change comes after 2021’s GameStop mania put the settlement process under close scrutiny. The wild fluctuations in so-called meme stocks meant that the agreed price for the trades was significantly different from the market price when the trade was actually settled. There were also increasing instances of “failures to deliver”, or deals where settlement did not occur, during that period.

Excitement around GameStop and other meme stocks has resurfaced in 2024. Shares of the video game retailer rose on Tuesday after revealing it had raised more than $900 million by selling additional shares.