Stock brokers are homing in on a fix for the market practice behind Robinhood's meme stock trading restrictions
- SIFMA, an industry group, told the SEC the financial industry would benefit from a move to "T+1 settlement."
- Markets run on two-day settlement, which Robinhood says led to issues during the the meme-stock craze.
- In January, Robinhood faced calls by its clearing house to put up extra collateral against the deluge of trades.
Leading brokers and banks have formed a consensus on a key technical issue that drove Robinhood's abrupt trading restrictions on GameStop and AMC in January, according to a letter to the SEC.
SIFMA, a cross-industry body representing big asset managers and brokers, told the SEC the financial industry would broadly benefit from a move to "T+1 settlement," where orders are filled in a single day's time.
SIFMA said all conceivable problems with T+1 settlement were fixable and pledged to follow up in September. SEC Chair Gary Gensler has previously expressed support for the move, saying in May he believes "shortening the standard settlement cycle could reduce costs and risks in our markets."
Markets currently run on two-day, or T+2, settlement, a factor which Robinhood says led to financial-plumbing breakdowns during the height of the meme-stock craze.
The Financial Times first reported the letter.
Because settlement occurs over two days, clearing houses - which manage risk between financial institutions - require members to post collateral based on trade volume and volatility.
So in January, as unprecedented volumes of retail traders piled into buzzy stocks like GameStop and AMC, Robinhood faced calls by its clearing house to put up extra collateral against the deluge of trades.
The massive collateral demand forced Robinhood to put in place controversial trading limitations - such as blocking new positions on certain stocks - and raise $1 billion in cash from investors, sparking huge blowback among politicians and investors who smelled a conspiracy.
One-day settlement would reduce collateral requirements and make the overall system more flexible, SIFMA said.