It's settled
Markets are only a week away from a new settlement cycle as the Securities and Exchange Commission (SEC) and the Depository Trust & Clearing Corporation (DTCC) move the industry to "T+1." Currently, market players are required to physically deposit stock in an account within two days of making a transaction, in a process known as "T+2." During that time, brokers have to post collateral to the DTCC because equity prices can fluctuate over those 48 hours and some buyers/sellers are using margin/borrowed shares, so the lag can make sure everything turns out all right.
Backdrop: For many years, markets operated on a "T+5" settlement cycle, when security transactions were done manually. In the 1990s, the SEC shortened the settlement cycle to three business days, which reduced the amount of money that needs to be collected at any given time. It was only in 2017 that the commission moved to T+2, calling the previous standard an outdated "settlement cycle" due to improvements in technology, emerging new products and growing trading volumes. Note: The move to T+1 will also impact ETFs, certain mutual funds, REITs and MLPs.
One of the biggest catalysts to speed up the clearing timeframe was the meme stock trading frenzy of 2021, which ironically, just resurfaced. Brokers were forced to post collateral during the settlement period and eventually had to restrict trading to ensure they had enough margin in the funds held by the DTCC. Some have even called for real-time settlement, like Robinhood (HOOD) CEO Vlad Tenev, who came away from the GameStop (GME) saga with condemnations from the retail crowd given the platform's slogan to "democratize finance for all."
Is it a possibility? The benefits of an even shorter settlement cycle are controversial. This could eventually fail to protect market participants by not giving enough time to detect failed trades, correct settlement instructions or deal with compliance issues. Instant settlement (T+0) would also require expensive updates to almost all market infrastructure and could do away with benefits like settlement netting, strain dealer resources, or weigh on important trading tools like margin purchases of stock. Other alternatives are also being explored, including T+0.5 or T+evening, where market trades would be settled the same day. Take the WSB survey.
Mideast watch
Energy markets are in the spotlight after the death of Iranian President Ebrahim Raisi in a helicopter crash was confirmed, as well as fresh headlines out of Saudi Arabia. Despite uncertainty related to major crude producers, the market impact of the developments has so far been contained. Raisi, who oversaw the acceleration of Iran's nuclear program, had long been viewed as a potential successor to Supreme Leader Ayatollah Ali Khamenei. Separately, Saudi Arabia's Crown Prince Mohammed bin Salman postponed a four-day visit to Japan as King Salman is being treated for lung inflammation. (3 comments)
AnEther ETF
Despite the recent success of spot Bitcoin (BTC-USD) exchange-traded funds, the crypto industry does not expect the SEC to approve more similar products. The regulator has until May 23 to announce its decision on VanEck's spot Ether (ETH-USD) ETF application, but issuers have indicated that there was limited communication and feedback from the SEC regarding their applications. A rejection by the SEC could potentially lead to lawsuits. Recall that Grayscale Investments' legal win last August paved the way for the approval of spot Bitcoin ETFs.
Under the sea
It's official! Red Lobster has filed for Chapter 11 bankruptcy after it buckled under mounting losses, costly leases, and rising material and labor costs. The company intends to use the proceedings to drive operational improvements, close restaurants, and pursue a sale of substantially all of its assets as a going concern. Red Lobster also announced a stalking horse bid from its existing lenders and $100M debtor-in-possession financing. The bankruptcy caps off years of financial troubles, which prompted top shareholder Thai Union Group (OTCPK:TUFBY) to look to exit its stake. (4 comments)
Today's Markets
In Asia, Japan +0.7%. Hong Kong +0.4%. China +0.5%. India closed.
In Europe, at midday, London +0.3%. Paris +0.5%. Frankfurt +0.4%.
Futures at 7:00, Dow flat. S&P +0.1%. Nasdaq +0.2%. Crude -0.2% to $79.41. Gold +0.9% to $2,439.80. Bitcoin -0.1% to $67,136.
Ten-year Treasury Yield unchanged at 4.42%.
Today's Economic Calendar
Fed's Bostic Speech
9:00 Fed’s Barr: "Bank Supervision and Regulation"
9:00 Fed’s Waller Speech
10:30 Fed's Jefferson: "The U.S. Economy and Housing Price Dynamics"
7:00 PM Fed's Bostic Speech
Companies reporting earnings today »
What else is happening...
Goldman Sachs: The name Magnificent 7 needs to be retired.
OpenAI seeks to address concerns after safety execs' exit.
Mercedes autoworkers in U.S. vote against union membership.
Delayed again! Boeing’s (BA) first crewed flight of Starliner.
... and is sanctioned by China over arms sales to Taiwan.
Boston Scientific (BSX) succeeds in trial for leadless pacemaker.
U.S. Steel (X) buyout in focus as key Nippon Steel exec to visit U.S.
Biden administration seeks end to coal leasing in Powder River Basin.
Target (TGT) lowers prices on thousands of frequently shopped items.
SA Roundtable: Are Eli Lilly (LLY), Novo Nordisk (NVO) overvalued?
