Settling down: T+2 settlement cycle and liquidity. (28th November 2021)

• Record Type: Journal Article
• Authors: Baig, Ahmed; Breeze, Stephen; Cox, Justin; Griffith, Todd
• Is Part Of: European financial management. Volume 28:Number 5(2022)
• Page Start: 1260
• Page End: 1282
• Publication Date: 2021-11-28
• Subjects: borrowing constraints -- failures‐to‐deliver -- liquidity -- trade settlement; Finance -- European Union countries -- Periodicals; International finance -- Periodicals; Corporations -- European Union countries -- Finance -- Periodicals; 332.094
• DOI: 10.1111/eufm.12344
• Languages: English
• ISSNs: 1354-7798

Abstract

Abstract: We examine the effects of a shortened settlement cycle on liquidity. Our difference‐in‐difference results show that securities listed on US stock exchanges become more liquid, relative to similarly matched securities listed on the London Stock Exchange, after the standard settlement cycle in the United States was reduced from T+3 to T+2. These results hold across various low‐ and high‐frequency measures of liquidity and empirical model specifications. Furthermore, we find that securities that are more difficult‐to‐borrow experience the greatest gains in liquidity. Our findings might provide insights to regulators and exchange officials considering the adoption of a shortened settlement cycle.