US returns to single-day trading settlements thanks to new SEC regulations

The US stock exchange is reportedly bringing back single-day clearing trading after almost a century. This regulatory adjustment announced by the SEC (Securities and Exchange Commission Regulations) cuts in half the time it takes to complete each transaction. Canada and Mexico will follow in similar footsteps.

According to a Bloomberg report, the reintroduction of the T+1 system aims to reduce the associated risks in the financial system.

But there are concerns about potential obstacles, such as the possibility that international investors will struggle to secure dollars in a timely manner, global funds move at different paces and tighter time frames to fix mistakes.

While everyone expects a smooth transition, the SEC previously said the proposed change could result in “a near-term increase in settlement failures and challenges for a small segment of market participants.” According to 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 at SIFMA, said: “There are many interdependencies in the industry and there may be some difficulties for individual companies.”

“But I am happy that companies are increasing employment. They make sure that during the transition period people are not on the beach, but in the office,” he added.

The T+1 period in the 1920s came to an end due to the manual nature of trading which could not keep up with the increasing trading volume. Ultimately, the settlement time was extended to five days. After the Black Monday crash in 1987, it was reduced to three days, and in 2017 even further to two days.

Meanwhile, in India, the equity trading settlement cycle has been gradually shortening over time. The cycle moved from T+5 to T+3 in 2002 and 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 also started in a phased system.