SEC considering tune up to "market plumbing" after meme stock craze
The SEC is considering a proposal, partly a response to the meme stock craze, to reduce the amount of time it takes to clear trades, the agency said in a release this morning.
Driving the news: In his remarks today, SEC chair Gary Gensler specifically pointed to last January's meme stock trading mania as a reason for the change. Back then, some traders weren't able to buy stocks at critical times because of issues with clearing trades, he said.
- "Today, the Commission is proposing several amendments to the securities clearing and settling process — what one might call the 'market plumbing,' " Gensler said.
- "I share the frustration of investors who were locked out from making certain trades," he added.
Between the lines: Right now it takes two days for a trade to clear, known as T+2. Meaning, if you sell a stock or convert a currency on Monday, you get the cash on Wednesday.
- This move would get the markets to T+1: Sell today — get paid tomorrow.
- If accepted, the proposal would take effect by March 31, 2024, the SEC said in a release today.
- In the future, we could see T+.5, the SEC said it is seeking comments on a same-day settlement cycle.
Why it matters: The less time it takes to clear trades, the less risk there is in the system. In a release today, the SEC cites two recent moments of volatility from the past couple of years, as examples:
- The Gamestop trading mania, which caused headaches for Robinhood largely because of T+2, as Felix Salmon explained here.
- The March 2020 COVID-related crash.
The big picture: This would be "the Wall Street regulator’s most direct response yet to last year’s wild trading in GameStop Corp. and other meme stocks," Bloomberg reported last week.
- The SEC is busy today, also proposing new transparency rules for private equity.
Go deeper: Wall street speeds up, slowly
Editor's note: This article has been updated with new details from Gensler's remarks.