The authorities claim that shorten the time between placing an order and completing a trade can reduce the type of “systemic risk” which came to the fore in early 2021, when the consumer electronics retailer’s share price GameStop Corp collapsed amid intense market volatility.
professional groups welcomed the Commission’s proposal of reduce the so-called settlement cycle fingers to a single business daysix years after an earlier SEC rule shortened the three-day period.
In a report On the events surrounding GameStop’s operations in early 2021, SEC staff said that the longer a trade remained unsettled, the greater the likelihood that a buyer or seller would defaultrefusing to pay or deliver the shares sold.
Clearing houses often require trading platforms to clear those risks with high margin deposits, costs that can skyrocket in periods of volatility and stress in the markets.
The SEC proposal
The eagerness of the agents in the market for move to a shorter settlement cycle “will help speed up the transition as overcome any obstaclesuch as costly system upgrades and industry-wide process changes, he noted Birgitta Siegel, Professor of Law at Cornell Universityin a comment submitted to SEC.
Industry players complained, however, that the SEC has proposed requiring the compliance with the new standard before March 31, 2024six months earlier than they would like.
Source: Ambito
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