The U.S. stock market is finally as fast as it was about a hundred years ago.
That was the last time share trades in New York settled in a single day, as they will from Tuesday under new Securities and Exchange Commission rules. The change, halving the time it takes to complete every transaction, also occurred in jurisdictions including Canada and Mexico on Monday.
The switch to the system known as T+1 — abandoned in the earlier era as volumes became unwieldy — is ultimately intended to reduce risk in the financial system.
Yet there are worries about potential teething issues, including that international investors may struggle to source dollars on time, global funds will move at different speeds to their assets, and everyone will have less time to fix errors.
The hope is that everything will run smoothly, but even the SEC said last week the transition may lead to a "short-term uptick in settlement fails and challenges to a small segment of market participants."
The finance world's main industry group, the Securities Industry and Financial Markets Association, has instigated what it calls the T+1 Command Center to identify problems and coordinate a response.
Firms across the spectrum have been preparing for months, relocating staff, adjusting shifts and overhauling workflows, and many say they're confident in their own readiness. The worry is whether every other counterparty and intermediary is similarly organized.
"There's a lot of dependencies within the industry and there may be some rough patches with individual firms," said Tom Price, managing director and head of technology, operations, and business continuity for Sifma. "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."
Challenging Transition
It's not the first time Wall Street has undergone such a transition, but industry pros say it will be the most challenging.
The T+1 era of the 1920s — a decade dubbed "the roaring '20s" in part because of the amazing stock market performance — ended because the manual nature of transactions meant it was impossible to keep up with surging trading activity. The settlement time was eventually pushed out as far as five days.
