Tom Potter Shares Insight on Reduced Trade Settlement Cycles for the Global Association of Risk Professionals
Tom Potter was quoted in the December 3, 2021 issue of Risk Intelligence, published by the Global Association of Risk Professionals, discussing a move by the U.S. securities industry to curtail risk by allowing securities trades to be settled more quickly.
The Depository Trust & Clearing Corp.’s (DTCC) National Securities Clearing Corp made significant calls for capital in January 2021 due to heavy trading of GameStop and other “meme stocks,” which led to trading restrictions by Robinhood and other brokerages. While Robinhood was able to meet those calls, the cost could have been reduced if trades settled faster due to less exposure to the risk of failing.
The industry currently operates on a T+2 settlement cycle, which means that trades are settled after the trade date plus two business days. However, a DTCC whitepaper has sparked an industrywide push to reduce the model to T+1 (next day settlement), and a real-time T+0 could be a possibility in the near future. Just this week, SIFMA and other industry leaders released a blue-print for the move to T+1.
Potter suggests that the move to T+1 is a realistic step to get to the T+0 model many in the industry covet, and he pointed to Robinhood CEO Vlad Tenev’s investor-protection based argument in a February 2021 congressional testimony favoring real-time settlement as evidence. Efforts to accelerate the use of distributed ledger technology (DLT), or block chain, such as JPMorgan Chase & Co.’s ConsenSys Quorum offers further evidence that T+0 is on the way.
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