Covering ETF Purchase at Vanguard

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Covering ETF Purchase at Vanguard

Postby runner9 » Tue Feb 05, 2013 2:59 pm

I have two positions that are in ETFs, as opposed to MFs. Previously I've moved money into a Money Market, then made the purchase and 3 days later it clears. This in in Roths at Vanguard, and VBS for the EFT parts.

I'm wondering if it's acceptable to buy the ETFs first,then make sure the money is in the Money Market.

Example: I put in a buy order tomorrow (Wed.), check after work that it went through, put in a transfer that evening from bank account to Money market.

Thursday the money is now in the Money Market

Monday (I think) the money transfers from the Money Market to VBS to cover the ETF purchase.

I guess it would be like writing a check without the money in the bank, knowing the check won't be cashed for a few days. Is this correct? Thanks!
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Re: Covering ETF Purchase at Vanguard

Postby SSSS » Tue Feb 05, 2013 4:29 pm

The only thing that matters is that sufficient funds are in the money market account on the settlement date.

You'll get a warning message, but you can override it.

Also, if you execute buy & sell orders on the same day, they'll essentially all settle simultaneously on the settlement date, so the only thing that matters is that the balance of the money market account isn't negative at the end. I.E. you don't have to worry about your buy orders settling first. However, you could have issues if you place good-until-cancelled orders, your buy orders execute on one day, and your sell orders don't execute until the next day.
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Re: Covering ETF Purchase at Vanguard

Postby Khanmots » Tue Feb 05, 2013 4:50 pm

I'm far from an expert but read up on free riding to be sure you're in the clear.
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Re: Covering ETF Purchase at Vanguard

Postby runner9 » Tue Feb 05, 2013 5:22 pm

Thanks!

I DCA twice a month and just buy the MF directly. I'd like to know the settlement amount and the transfer that exact amount into the Money Market. Otherwise, I have a few dollars left over and then have to put money into the money market the next time and then buy the MF with the leftovers and "new" money together.
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Re: Covering ETF Purchase at Vanguard

Postby indexfundfan » Tue Feb 05, 2013 5:49 pm

I do this all the time in my taxable (but non-margin) VBS account:

Day 0: Purchase ETF. You need to click through the warning.
Day 2: Submit request to purchase shares in linked money market account.
Day 3: Money to pay for ETF is deducted from the money market account.
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Re: Covering ETF Purchase at Vanguard

Postby livesoft » Tue Feb 05, 2013 7:44 pm

indexfundfan wrote:I do this all the time in my taxable (but non-margin) VBS account:

Day 0: Purchase ETF. You need to click through the warning.
Day 2: Submit request to purchase shares in linked money market account. <- You mean before market closes on Day 2 you request ACH transfer from your checking account to VBS money market fund, so that the ACH occurs overnight and before 8 am on Day 3?
Day 3: Money to pay for ETF is deducted from the money market account.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Covering ETF Purchase at Vanguard

Postby grabiner » Tue Feb 05, 2013 11:11 pm

runner9 wrote:I'm wondering if it's acceptable to buy the ETFs first,then make sure the money is in the Money Market.

Example: I put in a buy order tomorrow (Wed.), check after work that it went through, put in a transfer that evening from bank account to Money market.

Thursday the money is now in the Money Market

Monday (I think) the money transfers from the Money Market to VBS to cover the ETF purchase.


This will not work because Vanguard puts a 7-day hold on shares purchased with ACH transfers. If you put in a transfer on Wednesday and it is processed on Thursday, you can use the money to buy other Vanguard mutual funds on Thursday, but not to buy ETFs or stocks in your brokerage account. The hold will be released on the following Thursday, so you can buy ETFs next Monday, with settlement on Thursday.

If you aren't using an ACH, then this will work; you can buy an ETF on Wednesday, then sell a mutual fund on Thursday to put the necessary cash in your money-market account.
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Re: Covering ETF Purchase at Vanguard

Postby indexfundfan » Wed Feb 06, 2013 3:31 am

livesoft wrote:
indexfundfan wrote:I do this all the time in my taxable (but non-margin) VBS account:

Day 0: Purchase ETF. You need to click through the warning.
Day 2: Submit request to purchase shares in linked money market account. <- You mean before market closes on Day 2 you request ACH transfer from your checking account to VBS money market fund, so that the ACH occurs overnight and before 8 am on Day 3?
Day 3: Money to pay for ETF is deducted from the money market account.

Yes, that's what I do on Day 2 -- buying MMF shares through an ACH transfer from a checking account.

BTW, I am just sharing my experience, and I have done it many many times. In fact, I am doing one now -- purchasing money market shares on 2/6 for an ETF I bought on 2/4.

I can't explain if it doesn't work for you. ;-)
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Re: Covering ETF Purchase at Vanguard

Postby SSSS » Wed Feb 06, 2013 7:19 am

grabiner wrote:This will not work because Vanguard puts a 7-day hold on shares purchased with ACH transfers.


The hold only means you can't take the money out of Vanguard for 7 days. You can still move it around within your Vanguard account, including using it to purchase ETFs.
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Re: Covering ETF Purchase at Vanguard

Postby BBL » Wed Feb 06, 2013 8:25 am

SSSS wrote:
grabiner wrote:This will not work because Vanguard puts a 7-day hold on shares purchased with ACH transfers.


The hold only means you can't take the money out of Vanguard for 7 days. You can still move it around within your Vanguard account, including using it to purchase ETFs.


This. I do exactly what indexfundfan does with the only difference that I initiate a purchase into the MM sweep account associated with my VBS account as soon as the purchase [meaning the ETF purchase] executes. No problems so far....

For me:
Day 1 - purchase in VBS executes - go to accounts page and 'buy' whatever is needed to cover the purchase in the Prime MM sweep account.
Day 2 - there is no day two.

I make sure I get the e-mail after the settlement date and that nothing unplanned happened but otherwise I do the whole thing in a matter of minutes.
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Re: Covering ETF Purchase at Vanguard

Postby runner9 » Wed Feb 06, 2013 8:52 am

Thanks everyone.

Reading the 7 day comment before there were any responses (While shoveling the drive for what feels like the hundreth time this winter) I've always had the money in MM before buying, but I think most of the time it's been less then 7 days since the money went in until settlement without any issues.

Thanks for the clarifications afterwards. I really appreciate it :D
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Re: Covering ETF Purchase at Vanguard

Postby grabiner » Wed Feb 13, 2013 10:17 pm

I just made a transfer to my money market fund, and found the following note on the Unavailable Shares page:

Recently purchased shares of your linked money market fund may not be immediately available to pay for transactions in your Vanguard Brokerage Services® (VBS®) account. VBS may restrict your ability to trade in your brokerage account until the linked money market fund collects payment for recent purchases into that fund.


Thus it is not clear whether the hold applies for the full seven days.
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Re: Covering ETF Purchase at Vanguard

Postby runner9 » Thu Feb 14, 2013 7:35 am

Thanks for the update.

I just checked my transaction history on vanguard.com:

I bought the ETF shares on Feb. 6

I bought the same amount in Money Market on Feb 6, using outside funds.

The Money Market Sweep to Brokerage occurred on Feb 11.

There were no issues.
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Re: Covering ETF Purchase at Vanguard

Postby BBL » Thu Feb 14, 2013 8:09 am

grabiner wrote:I just made a transfer to my money market fund, and found the following note on the Unavailable Shares page:

Recently purchased shares of your linked money market fund may not be immediately available to pay for transactions in your Vanguard Brokerage Services® (VBS®) account. VBS may restrict your ability to trade in your brokerage account until the linked money market fund collects payment for recent purchases into that fund.


Thus it is not clear whether the hold applies for the full seven days.


David,

I’ve often wondered about that but have yet to have a problem. All of my ‘buy’ transactions into the MM sweep account have been from checking accounts [albeit 3 different ones from 3 different institutions].

I suspect the disclaimer is a CYA for VG. I’ve never busted a trade with VBS but wonder if I had would they actually apply that fund restriction? I’ve never been motivated to investigate further because what I’m doing always works and allows for laziness – one trip through the account and you’re done.

Sounds like runner9 had the same positive experience with this method.

If I ever have a problem doing this I'll be sure to post about it.
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Re: Covering ETF Purchase at Vanguard

Postby BBL » Mon Mar 18, 2013 8:19 am

Please read below - the methods some of us have previously described may no longer work. Be advised the 7 day hold may be enforced.


BBL wrote:I have posted in the past how I have used a method within VBS where I would execute a purchase of an ETF even though I did not have the cash available in the sweep account and once the trade executed, I would go to the accounts page and 'buy' the needed amount in the sweep account and all was well. The sweep account would reflect the balance from the 'buy' transaction as of the close of that trading day and as usual the trade would settle 3 days after execution, no muss no fuss.

For the first time it appears that this will not work and I just had to go initiate a sale from a mutual fund in my taxable account (from which I will get stuck with a realized gain). in order to cover the settlement.

Here is the timeline of what happened - and yes this appears to be evidence of enforcement of the previously existing 7 day hold on certain funds.

on 3/14 I made an ETF purchase in an IRA brokerage account through VBS. After the trade executed I went an initiated the 'buy' from a linked checking account to the sweep account for this brokerage account.

on 3/15 I look at the account and noticed that while the sweep account shows the correct balance (including the new funds from the 'buy' on 03/14) there is also an accounting category of 'Cash' below the IRA VBS account details. I had never seen that before and didn't think much of it. I assumed it would wash-out after the close on 03/15.

on 03/18 I noticed that 'Cash' category was still there so I started investigating. In this instance the 7 day holding period appears to have been enforced. The funds from the 03/14 'buy' into the sweep account are not available to settle the ETF purchase. Those funds will not be available until 03/21 (7 day hold was applied). As with a typical T + 3 settlement the 03/14 ETF purchase will settle tomorrow, 03/19.

My only immediate option to have the funds available for settlement of the trade was to exchange (sell) the required amount from a VG mutual fund in my taxable account and then 'buy' the amount (again) into the IRA sweep account. My past experience is that when I sell a VG mutual fund the funds are immediately available as of the close so I anticipate that the trade will settle tomorrow, 03/19 without further difficulty.

I wanted to alert anyone else that has been using this method to anticipate that it may no longer work. I got the pleasure of realizing a gain to attempt to settle this trade. Beware.
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Re: Covering ETF Purchase at Vanguard

Postby indexfundfan » Mon Mar 18, 2013 12:13 pm

BBL wrote:on 3/15 I look at the account and noticed that while the sweep account shows the correct balance (including the new funds from the 'buy' on 03/14) there is also an accounting category of 'Cash' below the IRA VBS account details. I had never seen that before and didn't think much of it. I assumed it would wash-out after the close on 03/15.

on 03/18 I noticed that 'Cash' category was still there so I started investigating. In this instance the 7 day holding period appears to have been enforced. The funds from the 03/14 'buy' into the sweep account are not available to settle the ETF purchase. Those funds will not be available until 03/21 (7 day hold was applied). As with a typical T + 3 settlement the 03/14 ETF purchase will settle tomorrow, 03/19.

My only immediate option to have the funds available for settlement of the trade was to exchange (sell) the required amount from a VG mutual fund in my taxable account and then 'buy' the amount (again) into the IRA sweep account. My past experience is that when I sell a VG mutual fund the funds are immediately available as of the close so I anticipate that the trade will settle tomorrow, 03/19 without further difficulty.

I wanted to alert anyone else that has been using this method to anticipate that it may no longer work. I got the pleasure of realizing a gain to attempt to settle this trade. Beware.

Is this "Cash" category listed under VBS or the mutual funds? I can only see "Net credit/debit" under VBS. There is no separate category under the mutual funds.

Coincidentally, I spoke to the margin desk just last week to resolve an alleged "late trade settlement". From my discussion with him regarding when funds should be available to settle a trade, there is nothing to indicate that the policy has changed.
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Re: Covering ETF Purchase at Vanguard

Postby BBL » Mon Mar 18, 2013 1:04 pm

indexfundfan wrote:Is this "Cash" category listed under VBS or the mutual funds? I can only see "Net credit/debit" under VBS. There is no separate category under the mutual funds.

Coincidentally, I spoke to the margin desk just last week to resolve an alleged "late trade settlement". From my discussion with him regarding when funds should be available to settle a trade, there is nothing to indicate that the policy has changed.


The "cash" is listed in the brokerage portion [not sweep account section] below the ETF holdings and above net credit/debit so the hierarchy looks like this [down the left column]:

Symbol
ETFs
VSS VANGUARD....

Other
Cash $XXXX.XX

Net Credit/Debit
Net credit/debit

I think the problem, as Doc mentioned in the other thread is with the MF side of the house, not VBS, the issue is that the MF side may be enforcing the 7 day fund hold [is enforcing it in my case] for outside funds which means that VBS could not clear the trade and then I get stuck with the result.

My trade settlement tomorrow apparently would have busted due to this fund availability issue.

Let me add that the sweep account shows the full amount [this 'cash' portion plus the available funds that were already there] but when you click on the sweep account for further details it lists the available and unavailable amounts. The 'cash' amount is unavailable and shows that it will not be available until 03/21.
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Re: Covering ETF Purchase at Vanguard

Postby indexfundfan » Mon Mar 18, 2013 3:34 pm

Interesting. I have never seen the "Cash" entry before.
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Re: Covering ETF Purchase at Vanguard

Postby runner9 » Thu Mar 21, 2013 8:11 am

http://www.bogleheads.org/forum/viewtopic.php?f=1&t=113056&newpost=1646922

Here's a link to the other thread. I put in a buy for VSS and will try to fund the MMF when it executes and will see what happens.
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Re: Covering ETF Purchase at Vanguard

Postby BBL » Thu Mar 21, 2013 8:18 am

runner9 wrote:http://www.bogleheads.org/forum/viewtopic.php?f=1&t=113056&newpost=1646922

Here's a link to the other thread. I put in a buy for VSS and will try to fund the MMF when it executes and will see what happens.


Assuming you are funding with outside funds as I did be on the look out for that 'cash' line, etc. Please report your results. Thank you. :beer
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