Expedited due to GameStop mania highlighting need for faster transaction processing
Requires investors to settle transactions one business day after trade instead of two
SEC implements change to reduce risk and improve efficiency in equity, corporate and municipal bond markets
Shift follows trend that saw T+2 replaced by T+3 in 2017
U.S. adopts new T+1 settlement cycle effective May 28, 2024
In a significant shift for the world's largest financial market, the U.S. trading system has adopted a shorter settlement period, effective from May 28th, 2024. The new T+1 settlement cycle aims to reduce risk and improve efficiency in the U.S. equity, corporate and municipal bond markets by requiring investors to settle their transactions one business day after the trade instead of two. This change was adopted by the U.S Securities and Exchange Commission (SEC) in February this year, following a trend that had already seen T+2 replaced by T+3 in 2017. The move to T+1 has been expedited due to the events surrounding the GameStop mania in 2021, which highlighted the need for faster transaction processing. The new settlement cycle is expected to make markets more resilient, timely and orderly while also making it harder for market manipulation. However, some challenges are anticipated in large dollar trades and funds that hold international stocks as not all markets align on settlement timeframes. Despite these potential issues, the overall sentiment in the industry is that markets should continue to move faster with cryptocurrency trades already settling in T0 due to the way blockchain ledger works.
Dave Lauer, CEO of Urvin Finance, advocates for shorter settlement cycles as it makes it harder for market manipulation and creates a more natural experience for investors.
Cryptocurrency trades settle in T0 because of how the blockchain ledger works.
