The US stock market is set to execute share trades at record speed from Tuesday, according to a recent announcement by the Securities and Exchange Commission
A new system named T+1 will replace the current T+2 arrangement, halving transaction processing times and releasing billions in capital previously held in the trading process.
The SEC believes this new method will diminish the potential for defaults and boost the stability of the national financial system.
However, T+1 will require significant resource allocation and system adjustments from brokers, exchanges, and banks due to the swifter trade settlements.
There are also concerns about securing dollars on time for international investors, global funds aligning their assets at the same speed, and a shorter timeframe for error correction. This could result in an initial increase in settlement failures and difficulties for some market entities.
The Securities Industry and Financial Markets Association has established a T+1 Command Center to manage these challenges. Many firms have made extensive preparations including changes in staff deployment and process restructuring.
These preparations are intended to ensure that the T+1 system transition is smooth and efficient and are indicative of the entire industry’s effort to secure the financial market.
However, there is hesitance about the equal readiness of all partners and intermediaries.
Accelerating US stock market trades
Tom Price of Sifma remains hopeful but considers potential issues from individual firms possible.
The reduction to the T+1 timeframe necessitates the adoption of advanced technologies and streamlined processes to meet these faster timelines and address issues such as liquidity management, market risk and counterparty risk. This major shift could lead to a more immediate global marketplace.
The new system will face two major tests soon: the “double settlement day” when T+2 trades coincide with T+1 operations, and an index rebalancing at MSCI Inc. Representatives from BNY Mellon express their readiness but expect potential complications.
