DTCC Proposes Shortening US Trading Settlement Cycle To T+1: Here's Why That's Important

In the wake of the temporary market chaos created by the WallStreetBets-fueled short squeeze in GameStop Corp. GME, AMC Entertainment Holdings Inc AMC, BlackBerry Ltd BB and other so-called meme stocks, major changes could be coming to the way stock trades are settled.

What Happened: On Wednesday, the Depository Trust and Clearing Corporation (DTCC) said it supports efforts to reduce the settlement dates of trades from two days after the date of the transaction to one day after, or T+1.

Why It’s Important: DTCC is the main processor of U.S. stock trades, and its $3-billion margin call on Robinhood was the primary driver behind controversial Robinhood buying halts and restrictions on GameStop and other meme stocks in late January.

In testimony before Congress, Robinhood CEO Vlad Tenev argued that same-day settlement would have prevented the concerns over liquidity that led Robinhood to prevent users from buying GameStop.

On Wednesday, DTCC released a report encouraging Wall Street to transition from T+2 to T+1 settlement by 2023 in an effort to reduce the risk of another GameStop scenario in the future.

Related Link: Market Experts React To GameStop Hearing: 'Congress Needed To Dig Deeper'

DTCC processes about $1.77 trillion in security trades each day. The entity’s main role is to ensure shares are delivered to every buyer and cash is delivered to every seller two business days after a trade is executed.

Themis Trading's Joe Saluzzi told Benzinga the transition from T+2 to T+1 may not be as quick and easy as some traders believe.

“This is good news, but the gears of Wall Street turn slowly, so I would expect that the conversion to T+1 may take a bit longer than expected,” Saluzzi said.

Benzinga’s Take: Most of the Wall Street representatives that testified at the recent Congressional hearing into the GameStop saga said there’s no reason for settlement to take two days in the digital era.

T+1 is a far cry from real-time settlement, but it could be a fair compromise and go a long way in easing liquidity restrictions on Robinhood and other brokers.