TheCorporateCounsel.net

The last few weeks have been a rollercoaster ride for investors, but a recent Financial Times article says that despite the wild gyrations that have followed “Liberation Day,” so far markets haven’t experienced a liquidity crisis. The article says that last year’s move to T+1 settlement is a big part of the reason they haven’t:

Shorter settlement time not only cuts the collateral that traders have to put up, but also reduces the risk that counterparties have disappeared by the time a trade settles. During periods of extended volatility, that fear can lead to a reduction in liquidity that, in turn, leads to even more volatility.

The article also notes that in addition to the direct benefit of a shorter settlement time, the investments made in preparation for T+1 improved communications among market participants and allowed them to better identify and address risks before they escalated out of control.

– John Jenkins