SEC intends to tighten the time frame for stock trading

The main regulator of Wall Street, the U.S. Securities and Exchange Commission (SEC), is preparing to adopt rules tightening the time frame for trading stocks. The SEC took a similar step to reduce the risk, similar to the GameStop fiasco in 2021, when retail investors suffered large losses.

The SEC is going to make changes to the rules protecting client assets owned by investment managers: to shorten the time interval between the placement of an order for securities and the completion of the transaction. This should help reduce the "systemic risk" identified in early 2021, when the price of meme shares of consumer electronics retailer GameStop plummeted during the hype amid intense market volatility.

GameStop's share price fell after trading volatility led to a multibillion-dollar margin demand by trading platform operators such as Robinhood Markets Inc. In response, Robinhood and others banned their users from buying its shares.

The SEC also noted that the longer the situation with GameStop remains unresolved, the higher the probability that the buyer or seller will not fulfill their obligations. At the same time, clearing houses often require trading platforms to compensate for such risks with high-margin deposits in dollars.

According to the SEC, a shorter settlement cycle should lead to fewer defaults and help reduce the cost of margin deposits.

Traders reacted positively to the news about the reduction of the settlement cycle from 2 to 1 business day, after an earlier SEC rule reduced this period from 3 to 2 days. The agency proposed to require compliance with the new rule by March 31, 2024.