Wall Street Giants Challenge SEC Over Real-Time Trade Settlement Risks

BlackRock and Citadel are suing the SEC over its new real-time settlement rule, arguing that it threatens liquidity, disrupts high-frequency trading, and introduces systemic risks.

BlackRock and Citadel have filed a lawsuit against the Securities and Exchange Commission (SEC), challenging its new rule mandating real-time trade settlement within 24 hours. The financial giants argue that the requirement threatens liquidity, disrupts high-frequency trading strategies, and could introduce systemic risks to the broader market. The SEC’s rule, aimed at reducing counterparty risk and enhancing market efficiency, accelerates the settlement process from the current T+1 framework to near-instantaneous transactions. However, critics warn that this shift places undue strain on institutional investors and trading firms that rely on delayed settlement windows for capital optimization and risk management.

BlackRock and Citadel claim that real-time settlement could limit firms’ ability to hedge positions effectively, increase operational burdens, and force liquidity providers to adjust strategies, potentially reducing market depth. High-frequency traders, who depend on seamless execution across global exchanges, may face significant execution challenges due to settlement constraints. Industry leaders have also raised concerns about the technological and operational readiness of clearing firms, questioning whether the infrastructure can handle the increased transaction volume without delays or unintended disruptions. If the rule moves forward, market participants may need to overhaul their settlement frameworks, automate reconciliation processes, and integrate advanced liquidity solutions to adapt.

The legal challenge underscores a broader debate over regulatory intervention in market structure. If the SEC prevails, the ruling could set a precedent for future settlement reforms, pushing the financial industry toward greater automation but also intensifying risks for firms dependent on traditional trading cycles. For now, market participants await the court’s decision, which could redefine the balance between innovation and stability in capital markets.