Pushing things too far could replace one set of risks with another, scarier one
Still, a lot can happen in two days on Wall Street, so why stop there? Spurred by the market gyrations of last year, a group representing banks, investors and clearers has been studying a move to+1 and is expected within weeks to unveil a plan for how to get there. The signs are that the Securities and Exchange Commission will bless it. If so, the halving of settlement time could kick in as early as 2023. Europe, for one, would probably follow suit.
Lest anyone think the titans of finance are going soft, it should be pointed out that they are not pushing this solely for the greater good. They are as interested in cutting their own costs as systemic risks. During last year’s market turmoil, overall margin demanded by the, America’s clearing agency for stocks, jumped five-fold, to more than $30bn daily. Hundreds of billions more a year are tied up by “fails-to-deliver”, delays owing to settlement failures .
Why then stop at one-day settlement? Evangelists for so-called distributed-ledger technology are touting the possibility of going to+0, known as “atomic” settlement. This looks technically feasible; indeed, some broker-to-broker trades at theBut is it desirable? There is a big difference between reducing settlement time and eliminating it. In the latter, the buyer would have to be pre-funded and the seller immediately ready to swap.
Cue cries of “Luddite!” But Buttonwood is in good company in advocating keeping some redundancy in the process. Ken Griffin, boss of Citadel, one of America’s largest marketmakers, and thus no techno-slouch, has described real-time settlement as “a bridge too far” because it requires “everything [to] work perfectly in a world where there’s still people involved”.
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