US Returns to Single-Day Trade Settlements with New SEC Regulations

The US stock market is reportedly bringing back single-day settlement trade again after nearly a century. This regulatory adjustment announced by the SEC (Securities and Exchange Commission Rules), halves the time needed to complete every transaction. Canada and Mexico will be following similar trails.

The reintroduction of the T+1 system aims to mitigate the associated risks in the financial system, as per a report by Bloomberg.

However, there are concerns about potential hurdles, such as the possibility of international investors facing difficulties in securing dollars on time, global funds operating at different paces, and the shortened timeframe to rectify errors.

While everybody is expecting a smooth transition, SEC earlier stated the proposed shift might result in a “short-term uptick in settlement fails and challenges to a small segment of market participants.”. As per the report, the Securities Industry and Financial Markets Association (SIFMA) has established a T+1 Command Center to detect potential problems.

Tom Price, managing director and head of technology, operations, and business continuity, SIFMA, said “There’s a lot of dependencies within the industry and there may be some rough patches with individual firms.” 

“But I’m encouraged that firms are staffing up. They’re making sure folks are not at the beach over the transition period but in the office,” he added. 

The T+1 period during the 1920s came to an end due to the manual nature of transactions, which couldn't keep pace with increasing trading volumes. Eventually, settlement time stretched to as long as five days. Following the 1987 Black Monday crash, this was shortened to three days, and in 2017, it was further reduced to two days.

Meanwhile, in India, the stock trade settlement cycle has witnessed a gradual reduction over time. The cycle moved from T+5 to T+3 in 2002, then to T+2 in 2003. 

In 2021, Sebi (Securities and Exchange Board of India) introduced the T+1 system, which was fully implemented in 2023. Earlier this year, the T+0 cycle was also given a start in a phased system.