Why it matters when trades settle

THE PAEANSKKR that followed the recent retirement of founders Henry Kravis and George Roberts, formerly private equity’s barbarians-in-chief, are a reminder that the story of Wall Street is one of big deals, bold trades and the people behind them. Those further behind them, in the “back offices” of banks, brokers and buy-out firms, barely get a look in. Understandably so: their world is colourless compliance and “post-trade” processes, like clearing and settlement. They are the plumbers of finance, toiling behind the scenes to ensure that the pipework, well, works. Every so often, however, there’s a gurgling noise loud enough to unsettle even those cocksure colleagues out front.The system for settling stock trades—ensuring the buyer gets her security and the seller his cash—came under strain during the covid-induced volatility of March 2020. It creaked again early this year amid the meme-trading frenzy in GameStop shares. A report by regulators into that episode, published on October 18th, noted drily that post-trade processes, “normally in the background, entered the public debate”. It was thanks to spiking margin calls and volatility-induced settlement risks that Robinhood, a retail broker, restricted trading in GameStop stock, causing uproar.