February 10, 2022
The SEC should be aware that shortening the settlement cycle from T+2 to T+1 (and even more so for T+0) would affect U.S. regulators' ability to conduct inside trading investigations of foreign accounts following major news announcements affecting the stock price of publicly-traded companies.
Currently, investigations of foreign accounts for potential insider trading take place in an expedited manner during the T+2 settlement cycle, before the money clears and leaves U.S. shores. In this short period of time, regulators have to obtain and analyze trading data for foreign brokerage accounts, identify potential insider traders, and request and obtain temporary restraining order to freeze the assets in those foreign accounts.
Shortened settlement period would not affect domestic accounts since jurisdiction is not a problem and any charges just need to be brought in the U.S. before the statute of limitations expires. But there would be little to no recourse for foreign accounts once settlement clears.
So if the settlement cycle is to be shortened, commensurate investments in technology to monitor insider trading in near real-time would be needed.
And as the SEC knows, many of these foreign insider traders are Chinese nationals and companies with connections to China are involved. As the SEC looks into delisting Chinese stocks and SPACs with Chinese connections, it should also consider these implications related to insider trading.