WASHINGTON, D.C.—Legal Director and Securities Specialist Stephen Hall issued the following statement on the filing of Better Markets’ Comment Letter to the Securities and Exchange Commission (SEC) in response to the agency’s proposal to shorten the securities settlement cycle:
“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. That’s why the SEC’s rule proposal is important. 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 creates risks to both parties to a trade and to the clearinghouse that stands behind the trade. The clearinghouse accounts for that risk by requiring brokers to post margin to cover possible defaults, and those margin requirements rise if a stock experiences dramatic price changes. When Robinhood’s clearinghouse required that it post additional margin—billions of dollars—to account for the extraordinary volatility of the meme stocks being traded by its clients, Robinhood said it couldn’t pay the tab and had to halt trading. It’s a vivid example of how some features and complexities in the plumbing of the stock market can harm investors and undermine confidence in the integrity of the markets.
“Accordingly, we fully support 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. It is also consistent with industry proposals for transitioning to T+1 so there should be no obstacle standing in the way of this reform. Accordingly, we urge the SEC to finalize the proposal without delay.”
Read our full comment letter here or click the button below.
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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.
Contact: Anton Becker at 202-618-6430 or abecker@bettermarkets.org
