Tag: DTCC

DTCC B16845-22: Are Margin Calls on The Way?

DTCC B16845-22
DTCC B16845-22 | Market News

On April 29, the DTCC released B16845-22 under the ‘settlement’ category.

The subject reads: changes to DTC collateral haircuts.

The notice is directed to all market participants and I’m going to touch topic on what this means down below.

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DTCC B16845-22 margin calls

DTCC B16845-22 says that affected participants may be margin called if they have reduced their collateral.

The reason being is that equities with reduced collateral value may significantly drop in price.

Stock prices over $10 will see an increase in margin requirements by 25%.

For prices between $7.50-$9.99 per share, margin requirements will increase by 30%.

There will be a 50% margin increase on stock prices between $5.00-$7.49, and a 100% increase on stocks with prices below $5 per share.

So, will DTCC B16845-22 affect AMC stock or GME stock?

Yes, since AMC is trading around $15 per share and GameStop is trading above $114.

Both these stocks will raise margin requirements by 25%, making it less accessible for short sellers to short the stocks.

However, as long as short sellers are able to meet margin demands, the heavy shorting will continue.

Why was this rule implemented?

The stock market has been facing massive selloffs as well as heavy short selling.

It’s possible DTCC B16845-22 was implemented as a way to cool off short selling, allowing the markets to catch a breather.

Some of the top CEOs in America have stated that they don’t expect this bear market to last long.

I don’t think anyone wants to see the U.S. go into another recession very soon.

While short sellers might have been able to profit from this market’s downside, I think we’re going to see more upside very soon.

What do you think?

Join the discussion in the comment section below?

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DTCC Makes Plans to Implement T+1 in 2024

T+1

The DTCC just announced they play to implement T+1 in the year 2024.

On February 9 the DTCC held a meeting to change the trading cycle from T+2 to T+1.

But is this change too far out?

I’m going to break down the benefits of T+1 as well as what the DTCC has to say regarding the lengthy time.

Also, what T+1 would mean for AMC and GME shareholders.

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What is T+1?

T+1, T+2, and T+3 refer to the number of days it takes for a security to settle after it has been traded.

T+1 means that if a transaction occurs on a Monday, settlement must occur by Tuesday.

Likewise, T+3 means that a transaction occurring on a Monday must be settled by Thursday.

We are currently on T+2 and have been since 2017.

So, what is T+0?

T+0 is a shortened settlement cycle where trades are settled the same day of transaction.

The DTCC recently argued that T+0 is rather complicated to achieve at the moment and is nearly impossible today due to how many orders flood the market daily.

They commented that as T+1 is implemented, they will monitor its progress to see how they may accommodate to T+0 at some point in the future.

When will T+1 happen?

DTCC T+1

The DTCC and SEC have established that T+1 will occur during the first or second quarter of 2024.

The DTCC is in favor of making this change in the first quarter of 2024 while the SEC feels like they will need more time and would like T+1 to go into effect during the second quarter.

T+1 is certainly a step forward; however, retail investors feel like this settlement day should be implemented sooner.

The DTCC and SEC agree that the process to implement this settlement day will require time.

Regulators have acknowledged that systemic risks may surface due to delayed settlement days, such as our current T+2.

Let’s talk about the risks of delays settlement trades.

Risks of T+2

Momentum stocks, also known as ‘meme’ stocks, proved last year when just how risky delayed settlement trades were when Robinhood ran out of liquidity to meet customer demands.

Robinhood is notoriously known for restricting retail investors from purchasing AMC, GameStop, and other ‘meme stocks’ due to liquidity issues.

The problem began due to delayed settlement trades.

So many orders were being processed and registered that by the time they were settled, liquidity had run dry forcing Robinhood to halt trading of these specific stocks.

The only problem here is that market makers are responsible for providing liquidity to broker firms such as Robinhood.

Robinhood makes money by sending retail orders to one of the biggest market makers in the world, Citadel.

Citadel at the time was losing billions from betting on AMC and GameStop.

This is where the Citadel and Robinhood scandal started, the day a losing market maker colluded with the broker to halt trading in order to prevent further losses.

Could T+2 be used as a copout for what occurred last year during the halts?

Be sure to leave a comment at the end of the article.

How would T+1 affect AMC and GameStop?

T+1 would not only affect AMC and GameStop, but it would ensure every stock in the market is settled one day after the purchase.

It would eliminate room for market makers to create naked shares during the settlement delay.

According to the SEC, in a “naked” short sale, the seller does not borrow or arrange to borrow the securities in time to make delivery to the buyer within the standard two-day settlement period

T+3 was removed years after the 08 crisis.

Now T+2 is scheduled to be removed three years after the ‘meme stock’ frenzy.

The change retail has been wanting to see is going to happen, but it’s going to take time.

As settlement trades get shortened, we can expect to see less risk in the market and less market manipulation.

Of course, there are still many predatorial strategies in the market that must be addressed.

Some of which include dark pool trading, off exchange trading, and short and distort campaigns where short sellers and media collude to drive the price of a stock down.

Related: How do hedge funds manipulate the stock market

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