Yesterday, the CEOs from Robinhood, Reddit, and Citadel LLC sat down for a grilling from the U.S. House of Representatives Financial Services Committee.
The subject matter was the massive short squeeze in GameStop Corp. (NYSE: GME) stock that occurred last month.
Members of Congress demanded to know why Robinhood restricted the trading of certain stocks—including GME—during the volatility.
The online broker’s excuse to lawmakers and its users: it didn’t have enough cash to meet deposit requirements at its clearinghouse.
A proposed longer-term solution is to decrease the settlement time for trades.
The current model is trade plus two (T+2), which means that all trades made today will be settled two days in the future. During the settling time, brokers—such as Robinhood—are required to provide cash to the clearinghouse as collateral for the stocks.
At yesterday’s hearing, multiple witnesses said that faster settlement would reduce the collateral requirements and could help to avoid similar trading restrictions during future market volatility.
In written testimony, Citadel CEO Kenneth C. Griffin called for “modernizing the settlement process, including shortened settlement cycles.”
Robinhood CEO Vlad Tenev submitted written testimony that included the statement, “there is no reason why the greatest financial system the world has ever seen cannot settle trades in real time”
During the hearing, Griffin noted that instant settlement would require trades to be “perfectly synchronized across all parties.”
Rep. Warren Davidson (R-OH) responded and suggested the technology required for instant settlement “is inherent to the architecture for blockchain.”
Mark Cuban, billionaire, Shark Tank investor, and owner of the Dallas Mavericks, jumped into the conversation on Twitter. He said, “blockchain is the best long-term solution” to provide instant settlement.
Blockchain is the technology pioneered by bitcoin that provides decentralized record-keeping and is considered to be less susceptible to hacking and manipulation.
Bitcoin continued its upward trend, setting a new record all-time high above $52,000 overnight. It’s peaking above $55,000 today. The market cap for bitcoin now exceeds $1 trillion for the first time ever.
Wall Street has largely avoided cryptocurrencies for the past decade. The recent revelations in the market indicate that bitcoin could contain the technology to allow Wall Street and regulators to keep up with higher trading volume in the future.
In its Project Ion study, The Depository Trust & Clearing Corporation (DTCC)—the main clearinghouse for stock transactions—is actively exploring the use of blockchain technology to reduce settlement time.
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