U.S. Stock Trades to Clear in a Day Under Clearinghouse Proposal

Bookmark

The clearinghouse that played a role in last month’s Reddit-fueled market frenzy is proposing that settlement times for U.S. stock trades be cut in half -- from two days to one -- by 2023.

Depository Trust & Clearing Corp. offered a blueprint for speeding up the process in a white paper published Wednesday. The behind-the-scenes system underlying any trade -- where buyers and sellers exchange cash for securities -- was thrust into the spotlight after retail investors coordinated on Reddit to bid up GameStop Corp. and other stocks.

The massive rally prompted Robinhood Markets to curb purchases of those securities, angering some customers, after the DTCC demanded an unusually high amount of collateral from the firm during the volatility.

“The hardest thing to do when trying to make a change like this in the industry is to get consensus and get the whole industry to coalesce around the date,” said Murray Pozmanter, head of clearing agency services at DTCC. “So 2023 at this point seems to be the date that we can get the industry to agree to move forward.”

Settling transactions in a single day, or T+1 in industry parlance, could reduce the volatility-based portion of members’ margin requirements by 41%, the clearinghouse said in its white paper.

The DTCC identified several major hurdles to enacting real-time settlement, an approach advocated by Robinhood Chief Executive Officer Vlad Tenev.

Real-time settlement would make margin trading more complicated for investors, the DTCC said. It would also increase the amount of money and securities changing hands in a given day because it would restrict the clearinghouse’s ability to net out buy and sell orders at individual firms, as it does now.

DTCC’s role in the GameStop saga, and that of a subsidiary, the National Securities Clearing Corp., became more evident after Robinhood restricted certain stock purchases. That move came on a day when the clearinghouse demanded a deposit of about $3 billion from the online brokerage.

In the days that followed, Robinhood raised $3.4 billion from its venture backers.

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.