Thursday, October 16, 2008

Settlement risk

Financial Times discusses settlement risk in an article noting OTC foreign exchange trading soars.

Although the article is about currency trading, it raises a pet peeve of this blog: All stock trades should be settled instantly, rather than the current T + 3 settlement period.

Doing so reduces one avenue for irresponsible behavior, one window with a large potential for networked (interconnected) risk. Modern trading platforms can certainly support instant settlement. The T+3 settlement does not provide any great advance to the average investor, and short term loans (what the settlement period may be abused to be, in effect) can be had elsewhere.

In other news: right-leaning Investor's Business Daily supports reinstating the uptick rule.

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