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April 11, 2022

SEC Proposal Will Make Stock Trading More Efficient, Less Risky

Better Markets filed a comment letter in response to the Securities and Exchange Commission’s (SEC) proposal to shorten the securities settlement cycle:

Why It Matters. A compelling example of what’s at stake arose during the January 2021 GameStop frenzy. The broker Robinhood, which caters to millions of retail investors, suddenly halted buying in GameStop and other “meme stocks” in late January of 2021.  That prevented investors from executing trades just as their stocks were experiencing huge volatility, resulting in losses to many of Robinhood’s clients and triggering a wave of lawsuits. The trading halt was driven in large part by the current T+2 settlement delay.  That two-day period between the execution of the trade and the final settlement of the trade creates risks to both parties to a trade and to the clearinghouse that stands behind the trade.  When the clearinghouse raised its margin demands on Robinhood to account for those risks, Robinhood didn’t have the funds and halted trading.

What We Said. The complicated mechanics of the securities markets are largely hidden from public view, but they have a huge impact on the fairness and stability of our markets, as the Robinhood example showed.  That’s why the SEC’s rule proposal is so important.  It would shorten the settlement cycle for securities transactions, from the current standard of two business days after the trade date (“T+2”) to one business day after the trade date (“T+1”).  That means less risk, less cost, and more stability all around.

Bottom Line. Better Markets fully supports the SEC’s proposal to finally shorten the settlement cycle from two business days after the trade (T+2) to one business day after the trade (T+1).  It will reduce the risks inherent in the delay between trade and settlement, and it will make situations like the Robinhood buying halt less likely. That will benefit investors, brokers, and the stability of the markets.

Read our full Comment Letter here.


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