DTCC Calls For Swift Trade Settlements Following Robinhood-GameStop Debacle

The Depository Trust and Clearing Corporation (DTCC) is calling for stepping up the time it takes for security settlements to clear, the DTCC said in a press release on Wednesday (Feb. 24).

DTCC — which provides clearing and settlement services for U.S. financial markets — was involved in Robinhood’s trading frenzy via its subsidiary National Securities Clearing Corporation (NSCC). DTCC developed a two-year direction that will lead to a shorter settlement cycle for U.S. equities: one business day after the trade is executed (T+1). Clearing currently takes two days.

“The immediate benefits of moving to a T+1 settlement cycle could mean cost savings, reduced market risk and lower margin requirements,” Mike McClain, DTCC’s managing director and general manager of equity clearing and DTC settlement services, said in a blog post on Wednesday (Feb. 24) that discussed the company’s latest whitepaper.

Shortening the settlement cycle would help balance “risk-based margining and procyclical impacts,” McClain said. Some $13.4 billion is held in margin daily to manage default risk. “Our risk model simulations have shown that the volatility component of NSCC’s margin could potentially be reduced by 41 percent by moving to T+1, assuming current processing and without any other changes in client or market behavior,” he added, referring to the whitepaper. A DTCC executive told The Wall Street Journal that its whitepaper was already in the works ahead of the Reddit-fueled GameStop trading frenzy. 

At the core of the trading debacle is the changing technological landscape, which has transformed to connect buyers and sellers in real time by seamlessly tapping social media and traditional bank accounts to facilitate trade. Robinhood CEO Vlad Tenev testified before a Congressional panel regarding its decision to restrict GameStop trading. He said the Silicon Valley startup had no choice but to stop trading because of the DTCC’s margin call.