It’s Time for Real-Time Settlement
By Vlad Tenev, CEO and Co-Founder, Robinhood
It’s time for T+2 to go.
Last week we saw the impact the two-day trade settlement period has on investors and ultimately the entire American financial system. Clearinghouse deposit requirements skyrocketed overnight. People were unable to buy some of the securities they wanted. Investors were angry and concerned, an unintended byproduct of the antiquated settlement process.
When people invest, they’re placing their hopes and dreams for the future in our financial system. We can’t let them down.
The existing two-day period to settle trades exposes investors and the industry to unnecessary risk and is ripe for change. Every day, clearing brokers like Robinhood Securities have to meet deposit requirements imposed by clearinghouses to support customer trades between the trade date and the date the trades settle. Investors are left waiting for their trades to clear, and the clearing brokers have their proprietary cash locked up, until the settlement is final days after the trade. The clearinghouse deposit requirements are designed to mitigate risk, but last week’s wild market activity showed that these requirements, coupled with an unnecessarily long settlement cycle, can have unintended consequences that introduce new risks.
There is no reason why the greatest financial system the world has ever seen cannot settle trades in real time. Doing so would greatly mitigate the risk that such processing poses.
It’s been four years since the securities industry moved from a three-day to a two-day settlement period. The Securities and Exchange Commission and the Depository Trust & Clearing Corporation, as well as other stakeholders, have recognized the benefits of an even shorter timeframe, leveraging technology. Meanwhile, millions of new investors have entered the market for the first time as technology transforms the world.
It’s time for the financial system to catch up.
The last few weeks have been extraordinary. We’ve seen a social movement intersect with technology and financial markets, and retail investors take the lead. These are our neighbors and friends and many from our Robinhood community.
As industry leaders, we need to meet this moment with a vision for the future and a focus on the people we serve. The industry, Congress, regulators, and other stakeholders need to come together to deploy our intellectual capital and engineering resources to move to real-time settlement of U.S. equities. Accomplishing this won’t be without its well-documented challenges, but it is the right thing to do and Robinhood is eager to drive this critical effort on behalf of all investors. Technology is the answer, not the oft-cited impediment. We believe it is important for all relevant stakeholders to convene in the near term to discuss the urgency and necessity of this issue.
To protect innovation, to steward our industry into the future, and most of all to meet customer demand. We want to join together to move forward to real-time settlement.