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Wall Street has made a historic return to T+1 trading, settling trades one business day after execution. SEC Chair Gary Gensler hailed the transition as smooth and beneficial for investors. However, the real question is: how much longer until T+0, where trades settle on the same day?
Lawrence White, an economics professor at NYU Stern, considers the shift to T+1 a “win-win” for hedge funds and broker-dealers, but downplays its impact on retail investors, calling it “small potatoes.”
For the crypto community, the T+1 move is seen as a step closer to T+0 settlements, akin to blockchain transactions. Ryan Selkis, CEO of Messari, and other crypto enthusiasts have expressed their support for same-day settlements, citing blockchain’s potential for instantaneous transactions.
T+1 marks a return to a settlement cycle not seen since the 1920s. The switch to T+1 was partly driven by the 2021 meme stock frenzy, which overwhelmed platforms like Robinhood. Shortening the settlement window to T+1 reduces default risks and lowers margin requirements for brokers.
However, the transition to T+0 isn’t without challenges. Immediate settlements could introduce risks of fraud and errors, as highlighted by White. He draws an analogy to a store purchase, where immediate transaction finality might not allow for necessary checks.
Moving to T+1 already creates discrepancies with the global foreign exchange market, which still operates on a T+2 cycle. This misalignment could affect $70 billion of daily forex trades.
For retail investors, faster settlement cycles might be more than a convenience—they could be crucial. As retail trading volumes grow, with peak daily flows reaching $1.5 billion in 2023, the demand for quick access to funds increases. Robert Le, a crypto analyst at PitchBook, suggests that many retail investors need immediate access to their money, such as selling stocks to cover urgent expenses.
While the SEC hasn’t ruled out T+0, achieving it requires addressing the complexities and risks involved. Distributed ledger technology may eventually make T+0 both desirable and feasible, as noted by SEC Commissioner Caroline Crenshaw.
As Wall Street continues to evolve, the debate on moving to T+0 remains active. The potential for faster, more efficient settlements is tantalizing, but the journey will involve navigating technical, operational, and regulatory challenges.