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Wall Street launches rapid settlement of operations

Wall Street launches rapid settlement of operations

By Laura Matthews, Carolina Mandl, Reuters agency.- Securities trading in the United States moves to a faster settlement, which regulators hope will reduce risk and improve efficiency in the world’s largest financial marketbut it can cause a increased transaction failures for investors.

To comply with a rule change that United States Securities and Exchange Commission (SEC) adopted last February, investors in stocks, corporate and municipal bonds and other local securities must, starting Tuesday, settle their transactions one business day after trading, instead of two.

Settlement is the final phase of a transaction, in which buyers receive their securities and sellers collect money.

Canada, Mexico and Argentina accelerated their stock market transactions the day before, to one day, with a smooth transition, Canada reported. The UK is expected to follow suit in 2027 and Europe is considering the change.

Regulators adopted the new standard, commonly called T+1after the 2021 stock frenzy surrounding so-called “meme stocks” highlighted the need to reduce counterparty risk and improve capital efficiency and liquidity in securities transactions.

“Shortening the settlement cycle … will help markets, because time is money and time is risk,” SEC Chairman Gary Gensler said in a statement, adding that it would make the infrastructure of the market more resilient. market.

However, it carries a risk, as companies have less time to find the dollars to buy shares, borrow shares or correct transaction errors, which could increase settlement failures and raise transaction costs.

Trades fail when a buyer or seller fails to fulfill their obligation on the settlement date, which can result in losses, penalty fees, and reputational damage.

“Hopefully, we will start to see the benefit that we hope to see, which is reduced risk, a reduction in margin or collateral, and we hope that this will occur without serious repercussions on settlement rates,” said RJ Rondini, chief operating officer. of securities of the Investment Company Institute.

Settlement is the process of transferring securities or funds from one party to another once a transaction has been agreed. It takes place after clearing and is managed by the Depository Trust Company (DTC), a subsidiary of the Depository Trust and Clearing Corporation.

The United States is following in the footsteps of India and China, where there is already a faster sell-off.

Source: Ambito

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