Greenspan urges faster settlement of stock trades

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WASHINGTON (October 16, 2000 9:23 a.m. EDT http://www.nandotimes.com)- The securities industry must shorten the time it takes to complete stock trades because lengthy delays pose risks to the financial system, Federal Reserve Chairman Alan Greenspan said Monday.

Greenspan said rising volumes of stock trading are "straining the capacity" of brokerages to settle trades in a timely fashion.

He said "an increasing number of transactions are failing to settle as scheduled on the third business day" after the trade is executed.

Greenspan said such a lengthy delay between the time an investor purchases a stock and when all the paperwork is completed for the transfer increases risks to the nation's financial system, including the banks that make loans to help finance purchases of stock.

"Errors and delays in settling trades imply greater operational risks," Greenspan said in a speech to a financial markets conference sponsored by the Atlanta Federal Reserve Bank.

Greenspan noted that the Securities Industry Association, a trade group, has been working to compress the settlement cycle with the aim of having all trades completed one day after the stock sale is made rather than the current three-day period.

The Fed chief, whose agency is a principal regulator of banks, said that shorter time for the completion of stock sales would lower the risk of defaults on any one trade.

During times of market volatility when stock prices are plunging, the Fed is always worried that large banks may be vulnerable if investors to whom they have lent money are unable to come up with more collateral for those loans as stock prices plummet...

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-- Andre Weltman (aweltman@state.pa.us), October 16, 2000