Wall Street trades are settling at the fastest pace in a century, as the SEC tries to cut risks

Sounds like a math problem… actually one of the biggest changes to Wall Street trading in a century. As of yesterday, trades of US stocks, bonds, ETFs, and some mutual funds now settle within one day (aka: “T+1”) instead of two. FYI: when investors make a trade, it may seem on their end as if the transaction is completed, but more work is done behind the scenes to settle the trade. Since 2017, US exchanges had followed a T+2 policy, meaning it took two business days for clearinghouses to verify funds and transfer stocks. Now, that background work’s been expedited, as the SEC looks to reduce the likelihood of issues arising between when a trade’s made and when it’s settled.

• Smooth move: SEC Chair Gary Gensler said the switch would let investors access cash quickly and make market plumbing more “resilient, timely, and orderly.” The push for T+1 heated up during the volatile 2021 meme-stock rally.

• High-speed: The US joins India and China, which already settle trades in a day or less. On Monday, Canada, Mexico, and Argentina adopted T+1.

America's settlement saga… The last time Wall Street trades were settling in a day was in the 1920s, when markets were much smaller. But as trading grew more popular and complex, settlement times were pushed to several days to handle the volume. Now that T+1 is back, brokerages need to post enough collateral to cover just one day of risk, instead of two, before trades are settled. Theoretically, that halves the time during which things could go wrong (like: a trader defaulting before the transaction is settled).