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Wouldn't it be more relevant to reduce the time it takes to settle trades? That seems anachronistic, like sending checks by snailmail. We have so many computers

Wouldn't it be more relevant to reduce the time it takes to settle trades? That seems anachronistic, like sending checks by snailmail. We have so many computers in the 21st century, and most money is digital already. Does settling/clearing on a delay actually serve a purpose, or just enables someone to collect rent?

collinmcnulty 3y ago
It serves the purpose of bringing all the market participants together to have the deepest market at the time of trading. This prevents pricing swings based on who happens to want to trade right this minute. Trading more frequently actually allows brokers to collect rents in the form of a spread for the “service” of buying from you now and selling to me later. If we had a daily auction, we could avoid the need for such a broker spread.
- toomuchtodo 3y ago
  Supporting citation: https://www.bloomberg.com/news/articles/2024-04-29/stocks-trade-for-390-minutes-a-day-increasingly-only-10-matter https://www.bloomberg.com/news/articles/2024-04-29/stocks-tr... | https://archive.today/C5LVD https://archive.today/C5LVD ("Bloomberg: Stocks Trade for 390 Minutes a Day. Increasingly, Only 10 Matter")
tonfa 3y ago
> Does settling/clearing on a delay actually serve a purpose, or just enables someone to collect rent? It removes friction from the market since it gives time to line things up between market participants. For example if some assets are on loan, it gives time to the people who were borrowing it to find some other market participant to borrow it from. https://www.bloomberg.com/opinion/articles/2024-02-28/trading-stock-takes-time https://www.bloomberg.com/opinion/articles/2024-02-28/tradin... was a good explainer
- lucianbr 3y ago
  It's funny that the article explaining why it is good and necessary to have T+2 settlement also mentions that markets are moving to T+1 settlement. To me that seems like a contradiction. Must be my cluelessness talking.
  - tonfa 3y ago
    It's going to be a tradeoff in any case (T+2 requires more collateral but gives more times to line things up for settlement)

collinmcnulty 3y ago

It serves the purpose of bringing all the market participants together to have the deepest market at the time of trading. This prevents pricing swings based on who happens to want to trade right this minute. Trading more frequently actually allows brokers to collect rents in the form of a spread for the “service” of buying from you now and selling to me later. If we had a daily auction, we could avoid the need for such a broker spread.

toomuchtodo 3y ago
Supporting citation: https://www.bloomberg.com/news/articles/2024-04-29/stocks-trade-for-390-minutes-a-day-increasingly-only-10-matter https://www.bloomberg.com/news/articles/2024-04-29/stocks-tr... | https://archive.today/C5LVD https://archive.today/C5LVD ("Bloomberg: Stocks Trade for 390 Minutes a Day. Increasingly, Only 10 Matter")

tonfa 3y ago

> Does settling/clearing on a delay actually serve a purpose, or just enables someone to collect rent? It removes friction from the market since it gives time to line things up between market participants. For example if some assets are on loan, it gives time to the people who were borrowing it to find some other market participant to borrow it from. https://www.bloomberg.com/opinion/articles/2024-02-28/trading-stock-takes-time https://www.bloomberg.com/opinion/articles/2024-02-28/tradin... was a good explainer

lucianbr 3y ago
It's funny that the article explaining why it is good and necessary to have T+2 settlement also mentions that markets are moving to T+1 settlement. To me that seems like a contradiction. Must be my cluelessness talking.
- tonfa 3y ago
  It's going to be a tradeoff in any case (T+2 requires more collateral but gives more times to line things up for settlement)