Feb 9, 2022 - Economy

SEC considering tune up to "market plumbing" after meme stock craze

Gary Gensler

SEC chair Gary Gensler testifies before the Senate banking committee (Evelyn HocksteinGetty Images)

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.

Go deeper: Wall street speeds up, slowly

Editor's note: This article has been updated with new details from Gensler's remarks.

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