06.30.2016

Brexit, T+3 (by Jim Toes, STA)

Not enough has been written to describe the incredible performance last Friday by our nation’s exchanges and markets in the face of the Brexit vote and the rebalancing of the Russell indices. In addition to the record trading volumes at both the openings and closes, our markets experienced a record number of top level quote updates which according to the financial technology firm, S3 topped 15 billion (yes, billion) for just the listed derivatives markets. It was truly a day where the competitive frictions among market participants be put aside, with everyone tipping their hat to the other on a job well done.

“In addition to the record trading volumes at both the openings and closes, our markets experienced a record number of top level quote updates which according to the financial technology firm, S3, topped 15 billion…for just the listed derivatives markets.”

It is now three 3 days later and there exists another section of our marketplace equally as important and worthy of praise for their roles in keeping our markets functioning smoothly during times of high volatility. That is the clearance and settlement processes for the equity and listed derivatives markets, commonly referred to as T+3 for the former and T+1 for the latter. Few people involved in trading understand the C&S process, its history and the critical role it plays in the safety and soundness of our markets. In a 1975 speech by then SEC Commissioner Philip Loomis, he traces back the catalysts for the legislation for which our C&S process is designed correlating to the “distressing events of 1968-1971 when an unexpected surge in trading volume caused the securities industry to almost drown in a sea of paperwork”. This event came to be known as the Paperwork Crisis when the NYSE closed every Wednesday from June 12 – December 31, 1968 in order to process average daily volumes of 20 million shares on a T+5 basis. It is incredible how far we have come. To all clearing firms, clearing houses and depositories, today we tip our hat to you.

Our industry has evolved at an incredible pace these past 50 years and today is a good day to pause and give credit to where it is due. To the legislators who created the Securities and Exchange Acts which foster competition and regulation; to our nation’s regulators who implement these Acts and enforce them; and to all the market participants who represent some of the brightest and most entrepreneurial minds in the world. Our markets remain the envy of the world and while it is speed that captures most, if not all the attention, we need to remember that the clearance and settlement infrastructure is equally as worthy of our recognition.

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