Citadel chief voices support for move to shorter settlement for US equities

The comments were made before the US House of Representatives’ Committee of Financial Services, which discussed the increased volatility from retail traders in January.

Citadel’s Ken Griffin has voiced support to move settlement for the US equities market to T+1, as US lawmakers debate market structure in response to January’s retail trading craze.  

The comments from Griffin, who is CEO of one of the world’s largest hedge funds, were made before the US House of Representatives’ Committee of Financial Services, which discussed the increased volatility from retail traders that were spurred by the frenzy caused by online Reddit blog WallStreetBets (WSB).  

At the centre of the debate is the market’s T+2 settlement cycle, which has faced scrutiny from the CEO of retail trading platform Robinhood, who has instead called for same day settlement.  

Instead, participants including banks, brokers, custodians, hedge funds and market infrastructures have said only a T+1 settlement would work. 

“Recent events have highlighted clear opportunities to improve our market. One takeaway is the importance of modernising the settlement process, including shortened settlement cycles and transparent capital models,” said Griffin.  

“As we have seen, longer settlement periods expose firms to more risk in the time between execution and settlement, requiring higher levels of capital. Settlement cycles should be shortened from T+2 to T+1. 

“Transparent clearing house capital requirements will enable brokers and market makers to better prepare for potential capital demands and minimise the risk of associated market interruptions.”  

During January, Robinhood was forced to restrict trading in stocks such as GameStop and AMC due to a surge in volatility from retail traders that were determined to squeeze hedge funds that have short positions in the companies.   

As the stock price of GameStop stock began to jump dramatically, Robinhood and other brokers had to put up money with the DTCC to back those trades during the two days it takes for them to settle.    

According to certain industry experts, if a T+0 settlement cycle would have been in place it during this period, it could have wiped out Robinhood and countless others.    

DTCC, the US equities market clearing house, launched Project Ion last year to explore the possibility of same day settlement, however it recently said the initiative is currently not applicable to the market due to challenges around predictive financing, real-time reconciliation, and the loss of netting benefits.  

“We strongly support moving to T+1 or even T+½. The reality is that we already have the capability to clear and settle in T+1 or even the same day using existing technology, and in fact, we clear a number of T+1 trades every day,” said Michael McClain, DTCC managing director and general manager of equity clearing and DTC settlement services in an online post.