The US is now set to change. As of May 28, 2024. Why are they taking this step? A number of advantages are expected from it. Here are the five most important ones.
1. Risk Reduction
T+1 reduces the time between the execution and settlement of a trade. That means less time for market conditions to change. Risk is reduced.
2. Cost Savings
With a reduction in the time frame, capital is tied up for a shorter period. This leads to lower operating costs and fewer margin calls due to price changes.
3. Greater Stability
T+1 is expected to lead to greater stability in the financial market since it reduces counterparty risk and susceptibility to market volatility, and makes it possible to identify issues and solutions more quickly.
4. Modernization and Harmonization of Infrastructure
Shortening the settlement cycle requires an improvement to the systems and procedures of all parties involved, and promotes the adoption of advanced and automated technologies.
5. More Liquidity and Better Use of Capital
Capital is more readily available with T+1. This creates more opportunities to leverage capital, and increases overall market liquidity. Investors have faster access to funds and can invest or trade more efficiently.