Wall Street's top regulator on Wednesday adopted rules tightening the time-frame for stock trades in an effort to tamp down the kind of risk seen in 2021's GameStop fiasco, when retail investors suffered heavy losses.
Market participants' eagerness to move to the shorter settlement cycle "will help expedite the transition and overcome any obstacles," such as expensive systems updates and industry-wide changes to processes, Cornell University Law Professor Birgitta Siegel said inIndustry players have complained, however, that the SEC was moving to require compliance too quickly.
In a report on the events surrounding the GameStop trades of early 2021, SEC staff said the longer a trade remained unsettled, the greater the likelihood that a buyer or seller would default — by refusing to pay or to hand over shares sold. GameStop's share price tanked after its earlier volatility resulted in a multi-billion-dollar margin call on trading platform operators such as Robinhood Markets IncA shorter settlement cycle should see fewer defaults and thus help cut margin deposit costs, thereby reducing the chances of such a scenario recurring, according to the SEC.
Advisers need to hold investors’ assets with a firm deemed to be a "qualified custodian.
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