The Reddit GameStop squeeze has cast a spotlight on what’s being called the “antiquated” T+2 standard settlement cycle for most broker-dealer securities transactions.
“It’s time for T+2 to go,” Vlad Tenev, CEO and co-founder of Robinhood Markets, said in a tweet Feb. 2.
The current “two-day period to settle trades exposes investors and the industry to unnecessary risk and is ripe for change,” Tenev said in a blog post the same day. “Every day, clearing brokers like Robinhood Securities have to meet deposit requirements imposed by clearinghouses to support customer trades between the trade date and the date the trades settle. Investors are left waiting for their trades to clear, and the clearing brokers have their proprietary cash locked up, until the settlement is final days after the trade.”
The clearinghouse deposit requirements, Tenev continued, “are designed to mitigate risk, but [the week of Jan. 25] wild market activity showed that these requirements, coupled with an unnecessarily long settlement cycle, can have unintended consequences that introduce new risks.”
In a Feb. 5 tweet, Tenev suggested a T+0 settlement, what Jennifer Schulp, director of Financial Regulation Studies at The Cato Institute’s Center for Monetary and Financial Alternatives, called ”instantaneous” settlement.
Tenev’s tweet stated: “Thank you to everyone who has reached out re: T+0. We’ve heard from so many people who think it’s time for this to change. We’re moving forward and will report back soon!”
Former SEC Commissioner Michael Piwowar responded in a Feb. 3 tweet that “@vladtenev, if you’re leading an effort on whether/how to shorten the settlement cycle to T+1, I encourage you to follow our successful example of going from T+3 to T+2. Many of us stand ready to help. In the meantime, on behalf of all of us, you are welcome for T+2.”
.@vladtenev, if you're leading an effort on whether/how to shorten the settlement cycle to T+1, I encourage you to follow our successful example of going from T+3 to T+2. Many of us stand ready to help.
In the meantime, on behalf of all of us, you are welcome for T+2. 11/11
— Michael Piwowar (@MichaelPiwowar) February 3, 2021
As acting SEC chairman in 2017, Piwowar finalized a rule to change the settlement cycle for securities transactions to T+2 from T+3.