Like us after our afternoon espresso shot, stock transactions are doubling their efficiency.
As of this week, payments from sales of stocks or securities must be paid in full within a business day of the transaction going down, replacing the old two-day window. For retail investors, this means that you’ll now be getting cash from sales into your accounts a day sooner — hooray!
Why it’s happening: Canada (and several other countries) implemented the change to keep up with the U.S., which also moved to a one-day period this week. It was motivated by the 2021 meme stock frenzy in which some brokers were overwhelmed by the volume of trades.
- Brokers like Robinhood decided to freeze trading of stocks like GameStop due to delays in accessing payments connected to the trades stemming from the two-day wait.
Why it matters: Aside from speedy payments, the change is meant to strengthen the whole financial system by keeping money flowing and providing faster funding access. It also aims to reduce counterparty risk, a.k.a., the chance one side of a trade can’t hold up its end of the deal.
What they’re saying: “Shortening the settlement cycle also will help the markets because time is money and time is risk,” U.S. Securities and Exchange Commission Chair Gary Gensler said. “It will make our market plumbing more resilient, timely, and orderly.”—QH