One-day trade settlement period is expected to enhance liquidity and reduce market risk|Giphy
Starting today, the Securities and Exchange Commission (SEC) mandates new rules requiring US stock trades to settle in just one day (T+1) rather than the previous two days (T+2).
The regulators claim the move will reduce financial risks and address concerns stemming from the 2021 GameStop trading frenzy.
In January 2021, shares of GameStop skyrocketed 400% in a week, and Robinhood had to put a ten-fold increase in the firm’s deposit requirements due to the securities experiencing unprecedented volatility.
The buying frenzy by retailers drew attention from high-profile investors like Elon Musk and several lawmakers who called on regulators to intervene.
The changes
Effective immediately, the one-day settlement period, managed by the Depository Trust Company (DTC), aims to facilitate smoother fund flow and alleviate pressure on broker-dealers.
Retail investors will not see any difference except for the change that they will receive cash faster after stock sales.
However, banks and international traders would now encounter a tighter timeframe to convert foreign currencies to US dollars, heightening the likelihood of errors.
Yesterday, both Mexico and Canada adopted this change. The UK is set to follow suit in 2027.