Finance Fintech.

Why are stocks settled so slowly (T+2)?

The diagram below shows the overall flow.

There are 3 parts:
๐Ÿ”น Trading
๐Ÿ”น Clearing
๐Ÿ”น Settlement

โ–ถ๏ธ ๐“๐ซ๐š๐๐ข๐ง๐ 
Steps 1.1 โ€“ 1.3: The stock buyer and seller place orders via brokers or custodian banks.

Step 2: The brokers execute the orders in the exchange.

โ–ถ๏ธ ๐‚๐ฅ๐ž๐š๐ซ๐ข๐ง๐ 
Step 3: The exchange sends execution reports to the clearing agent.

Step 4: The clearing agent match, compare and confirm the trades among brokers or custodians.

โ–ถ๏ธ ๐’๐ž๐ญ๐ญ๐ฅ๐ž๐ฆ๐ž๐ง๐ญ
Step 5: The clearing agent calculates settlement obligations and sends to the settlement agent.

Step 6: The securities are delivered in exchange for funds.

You can see there are a lot of steps involved, so currently securities are settled T+2 (trade day plus 2 business days).

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