Why is it… that trades can now be executed in less than a millisecond, yet it still takes three full days for those trades to settle? The most likely answer is some combination of inertia, cost, and competing priorities.
– SEC Commissioner Luis A. Aguilar1
Each of us at Neosho can trace our financial careers back to the days of timestamping trade tickets and handing them to another firm employee locked in “the cage” to begin the trade settlement process. Striking the bargain, then as now, merely starts the process of shares trading hands for cash. We share Commissioner Aguilar’s frustration that clearing and settlement continues to operate in a quasi-analog manner while trade execution is fully digital and makes use of artificial intelligence and speed of light communications. As such, stock trades settle no faster than two days in Europe and three days in the U.S., no matter how liquid the stock.
Almost all of this time lag is caused by the need to bring, at the minimum, three party’s internal ledgers into agreement that the right shares in the right numbers can be exchanged for the right amount of cash.2 Despite the demise