Securities and Exchange Commission Chair Gary Gensler emphasized the importance of setting a firm timeline for reducing the settlement time for stock trades in Britain, echoing recent moves in other global financial markets.
Background and Current Developments
- Current Settlement Times: Currently, stock trades in Britain settle on a T+2 (Trade Date plus 2 business days) basis. This means that after executing a trade, it takes two business days for the transaction to be fully settled.
- Global Shift to T+1: Recently, major financial markets like the United States, Canada, and Mexico have transitioned to T+1 settlement. This move aims to reduce risks in markets and lower trading costs associated with margin requirements and operational inefficiencies.
- European Union Context: The European Union has signaled its intention to move from T+2 to T+1 settlement, aligning with the global trend toward faster settlement cycles.
Gensler’s Statements and Recommendations
- Benefits of T+1: Gensler highlighted that the move to T+1 in the United States reduced the average margin requirements for clearing houses significantly, demonstrating cost savings estimated at about $3.8 billion in the first two days alone. Moreover, the transition did not lead to an increase in failed settlements, contrary to some predictions.
- Importance of Setting a Date: Gensler stressed the importance of establishing a clear and definitive timeline for transitioning to T+1 settlement in Britain. He emphasized that setting and adhering to a specific date is crucial for market participants to effectively prepare and adjust their operations.
- Lessons Learned: Gensler noted that prior to transitioning to T+1, ensuring same-day affirmation of trades was essential. This practice helps mitigate risks and ensures smoother transitions during the settlement process.
Future Outlook and Challenges
- Implementation Timeline: Gensler suggested that if Britain follows a similar trajectory as the United States, aiming for a mid-2026 transition to T+1 settlement would be feasible. However, he underscored the need for consistent momentum and action to meet the 2027 deadline set by the UK.
- Policy Clarity and Momentum: Charlie Geffen, who led a report commissioned by the UK government on the transition to T+1, emphasized the importance of maintaining momentum and clarity in policy decisions. He highlighted that while finalizing details is crucial, it’s equally vital to avoid losing momentum toward achieving the established deadline.
- Global Precedents: The move toward T+1 settlement in Britain is seen as a precursor to potentially adopting same-day settlement practices, which are already operational in markets like China (for A shares).
In conclusion, Gensler and other industry experts advocate for a decisive and coordinated approach in transitioning to T+1 settlement in Britain, aligning with global standards and enhancing market efficiency and resilience.
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