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Stock trading settlement shifts to one day as GameStop frenzy highlights the necessity for quicker transactions



Wall Street is set to undergo a significant change this week, with trades of stocks and securities needing to be settled by the end of the next business day, following the implementation of T+1 settlement. This move, advocated by Securities and Exchange Commission Chair Gary Gensler, is aimed at making the market plumbing more resilient, timely, and orderly. The shift towards T+1 settlement is expected to benefit everyday investors by allowing them to access their funds more quickly, as well as reducing time and risk in the trading process.

For most retail traders, the transition to T+1 settlement is expected to be smooth, as brokerage firms typically handle settlement automatically for their customers. However, challenges may arise for larger trades and funds, particularly those involving international stocks where markets have different settlement time frames. Tim Huver from Brown Brothers Harriman notes that larger trades could experience cost fluctuations depending on the product and underlying market.

The move to T+1 settlement is not unprecedented, as the SEC previously transitioned from T+3 to T+2 settlement in 2017. The decision to move to T+1 settlement was officially adopted in February, following industry expectations. The change comes after increased scrutiny on the settlement process in the wake of the GameStop mania in 2021, which saw wild price swings and instances of failure to deliver during settlement. The recent resurgence in meme stocks, including GameStop, has sparked further interest in improving the settlement process.

In light of the upcoming shift to T+1 settlement, market participants are preparing for potential adjustments and challenges. With the aim of streamlining the trading process and reducing risk, the move towards faster settlement is expected to benefit both investors and market infrastructure. While the transition may pose challenges for some segments of the market, the overall goal is to create a more efficient and resilient trading environment.

As Wall Street gears up for the implementation of T+1 settlement, the focus is on ensuring a seamless transition for market participants. Retail traders are likely to experience minimal disruption, as brokerage firms are equipped to handle settlement automatically. However, larger trades and funds may need to navigate potential cost fluctuations, particularly for international stocks with varying settlement time frames. The move towards accelerated settlement is seen as a positive step towards enhancing market efficiency and reducing risk.

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