The Settlement Process
After a trade executes, the buyer must pay for securities and the seller must deliver them. In the U.S., equity trades settle on a T+1 basis (one business day after the trade date) as of 2024. Before 2024, settlement was T+2. During the settlement period, each side of the transaction faces counterparty risk — the risk that the other party fails to deliver.
The DTCC's Role
The Depository Trust & Clearing Corporation (DTCC) operates the primary U.S. equity clearinghouse through its subsidiary NSCC. The DTCC acts as central counterparty to both sides of every trade, eliminating bilateral counterparty risk. Broker-dealers must maintain margin deposits with the DTCC based on the risk profile of their unsettled positions.
The GameStop Connection
In January 2021, Robinhood cited elevated DTCC margin requirements as the reason it halted purchases of GameStop. As Robinhood's customers took increasingly large and concentrated positions in highly volatile stocks, the DTCC's risk-based margin requirements increased dramatically. This is a documented mechanical constraint, independent of any coordination with market makers, that can restrict broker activity during extreme market events.
T+1 Settlement and Its Benefits
The 2024 move from T+2 to T+1 settlement was designed in part to reduce the margin requirements that create constraints like those Robinhood experienced in 2021. By reducing the settlement period, T+1 reduces the risk exposure period and the associated margin requirements. This change was supported broadly by regulators and industry participants.