NEW YORK, May 24 (Reuters) – U.S. markets are in turmoil on Tuesday, May 28. New Securities and Exchange Commission (SEC) rules will be adopted in February 2023.
Here’s what you can expect:
What is payment?
Trade settlement opens in a new tab once the buyer has received the security and the seller has been paid. This final step is handled by the Depository Trust Company (DTC), a subsidiary of the Depository Trust and Clearing Corporation.
What does faster payments mean for the market?
Regulators hope the faster settlement process will allow investors to get their money and securities faster, reducing risk and increasing efficiency in the world’s largest market. Currently, transactions take two days to complete, which can cause problems before investors receive their funds or securities.
Trading frenzy surrounding ‘meme stock’ GameStop (GME.N) opens in new tab in 2021, highlighting the need to reduce counterparty risk and improve capital efficiency and liquidity in securities trading did. SEC Chairman Gary Gensler said the changes will increase the resiliency of U.S. market infrastructure and open a new tab for timely and orderly action.
How will it be implemented?
Over the next weekend, market participants will prepare to begin settling trades in one day instead of two on May 28th. They’ve been testing faster payments since at least August 2023, but this weekend will be key.
The virtual command center opens a new tab created to monitor your implementation and communicate any potential issues. More than 1,000 people will take part in multiple calls each day, said Tom Price, managing director of industry group Shiftma.
The conversion of the Depositary Trust and Clearing Corporation (DTCC) to T+1 is central to the transition to faster payments, as it provides clearing and settlement services to Wall Street, but from banks to all market participants. Will need to adjust. To asset managers and custodians.
Will the US be the first country to move to T+1?
no. After the Securities and Exchange Board of India completed the phased transition in January 2023, trades in India are now settled the day after the trade. India is now aiming for same-day payments, joining China, which has banned stock payments. +0 and T+1 for cash payments.
Canada, Mexico, and Argentina will also move to one-day settlement on May 27, one day before the United States.
AMIB (Mexican Association of Stock Institutions) Management Board Chairman Alejandro Félix said that Mexico has decided to accelerate T+1 in order to maintain relations with the United States.
Who’s next?
The UK stock market plans to move to T+1 by the end of 2027, and the European Union has said it is considering following the US, but no date has been announced.
What are the challenges?
Financial institutions will have less time to raise funds to buy stocks, collect stocks they have lent, and correct trading mistakes, increasing the risk of settlement failures and potentially increasing transaction costs. . For example, the foreign exchange market still settles down in two days.
What could go wrong?
We expect a temporary increase in trade failures as market participants adapt to faster settlements. According to Schifma, this happened in September 2017 when the settlement period was shortened from three days to two.
“Shorter settlement cycles could lead to a short-term increase in settlement failures, opening new tabs and creating challenges for some market participants,” the SEC said. A survey by research firm ValueExchange found that market participants expect to open new tabs. After the introduction of T+1, the transaction failure rate increased from 2.9% to 4.1%. Price said Schiffma expects the increase in failure rates to be minimal and resolved quickly.
(This article has been re-edited to correct typos)
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Reporting by Carolina Mandl in New York. Additional reporting by Laura Matthews in New York and Noe Torres in Mexico City. Editing: Megan Davis and Richard Chan
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