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Stock settlements just got faster in the US, but can they be even quicker?

In the past, buying or selling a stock meant waiting two business days for the trade to settle (T+2). This meant a two-day gap between agreeing on a price and actually receiving the stock and money.

As of May 28, 2024, the US market has moved to a T+1 settlement cycle. Trades will now settle in one business day, reducing the risk involved for both buyers and sellers.

But the question remains: could the market move even faster towards T+0, or same-day settlement?

Benefits of a T+0 settlement:

  • Reduced risk: Less time between agreeing on a trade and exchanging cash and stock means less chance of unexpected events impacting the deal.
  • Lower risk of manipulation: T+0 settlements can make it harder to manipulate markets or engage in manipulative short selling.

Examples of T+0 settlement:

  • Cryptocurrency: Crypto trades already settle in T+0 thanks to blockchain technology.
  • India's stock market: India is the first country in the world to implement T+0 settlements for selected stocks.

While same-day settlement (T+0) reduces settlement risk, some argue it could introduce operational challenges and strain liquidity in certain markets.

The future of settlement times:

Will other markets, like the US, Canada, UK, and Mexico, follow India's lead and move towards T+0, or will they stick with the newly adopted T+1 system for now?

Only time will tell!

 

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