Is there an accepted settlement "time of day"?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
nalor511
Posts: 5731
Joined: Mon Jul 27, 2015 1:00 am

Is there an accepted settlement "time of day"?

Post by nalor511 »

ETFs transitioned to T+1 this year from T+2. For those familiar with the backends, is there an accepted "settlement time of day"?

E.g. is an etf buy executed during market hours on t+0 settled on:
a) t+1 at the same time the buy executed?
b) t+1 at market close?
c) t+1 at whatever time the broker chooses to run their backend updates, up to 23:59 at the latest?
User avatar
David Jay
Posts: 14975
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Is there an accepted settlement "time of day"?

Post by David Jay »

There can also be a difference between when the settlement occurs and when the settlement is visible to you online.

Vanguard sometimes does not update the user interface until shortly before market opening the next day. I have never had obsolete information online after 9:00 AM but I have had yesterday's information as late a 5-6AM.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
livesoft
Posts: 87936
Joined: Thu Mar 01, 2007 7:00 pm

Re: Is there an accepted settlement "time of day"?

Post by livesoft »

Depends. However, I think brokers that don't settle trades before the market opens on T+1 should be avoided.
Wiki This signature message sponsored by sscritic: Learn to fish.
alex_686
Posts: 14061
Joined: Mon Feb 09, 2015 1:39 pm

Re: Is there an accepted settlement "time of day"?

Post by alex_686 »

Trades settle in the overnight batch process. When exactly that happens depends on the brokerage but it really doesn’t matter because you won’t be able to access it until the next day.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Topic Author
nalor511
Posts: 5731
Joined: Mon Jul 27, 2015 1:00 am

Re: Is there an accepted settlement "time of day"?

Post by nalor511 »

alex_686 wrote: Mon Oct 21, 2024 2:54 pm Trades settle in the overnight batch process. When exactly that happens depends on the brokerage but it really doesn’t matter because you won’t be able to access it until the next day.
Thank you Alex, when you say "overnight" are you referring to "before 23:59 on T+0" or "before 23:59 on T+1"?

Specifically I'm trying to ensure this order doesn't get reversed/frozen when my broker receives the ACATs
User avatar
Kagord
Posts: 1923
Joined: Fri Nov 23, 2018 12:28 pm
Location: Ridgeview, Ohio

Re: Is there an accepted settlement "time of day"?

Post by Kagord »

alex_686 wrote: Mon Oct 21, 2024 2:54 pm Trades settle in the overnight batch process. When exactly that happens depends on the brokerage but it really doesn’t matter because you won’t be able to access it until the next day.

Yes, and to clarify and muddle and complicate things, my understanding is this batch process is run after close on settlement day, cash and security ownership is recorded and on the ledger at that time. Basically I was told to forget what's on the web page, this is how the process actually works behind the scenes, and not to worry about it unless you are cash negative after that batch run.

But if I understood incorrectly, I'd like to know, anybody on here involved with that batch process?
alex_686
Posts: 14061
Joined: Mon Feb 09, 2015 1:39 pm

Re: Is there an accepted settlement "time of day"?

Post by alex_686 »

nalor511 wrote: Mon Oct 21, 2024 3:32 pm
alex_686 wrote: Mon Oct 21, 2024 2:54 pm Trades settle in the overnight batch process. When exactly that happens depends on the brokerage but it really doesn’t matter because you won’t be able to access it until the next day.
Thank you Alex, when you say "overnight" are you referring to "before 23:59 on T+0" or "before 23:59 on T+1"?

Specifically I'm trying to ensure this order doesn't get reversed/frozen when my broker receives the ACATs
So that would be sometime after 4pm on t+1 but before 9 am of t+2.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Topic Author
nalor511
Posts: 5731
Joined: Mon Jul 27, 2015 1:00 am

Re: Is there an accepted settlement "time of day"?

Post by nalor511 »

alex_686 wrote: Mon Oct 21, 2024 3:44 pm
nalor511 wrote: Mon Oct 21, 2024 3:32 pm

Thank you Alex, when you say "overnight" are you referring to "before 23:59 on T+0" or "before 23:59 on T+1"?

Specifically I'm trying to ensure this order doesn't get reversed/frozen when my broker receives the ACATs
So that would be sometime after 4pm on t+1 but before 9 am of t+2.
Ooh, ouch, that is later than I had hoped, but at least it's a concrete figure I can put my finger on. Thanks so much!
ccieemeritus
Posts: 811
Joined: Thu Mar 06, 2014 9:43 pm

Re: Is there an accepted settlement "time of day"?

Post by ccieemeritus »

I've heard that, even in a specific brokerage, the settlement transactions can occur at different moments for different orders.

Lets say you place two orders on the same day:

(initial cash balance $0)
1) Sell AAAA for $1000
2) Buy BBBB for $1000

During settlement, order #2 might settle before order #1. But you didn't have the cash to execute #2 at that moment resulting in a trading violation.

My person at Schwab gave this as a reason to keep the margin feature active on my taxable account (despite my intention never to buy stocks on margin). The 1-hour margin loan for $1000 would eliminate the trading violation and result in no interest.
User avatar
grabiner
Advisory Board
Posts: 36233
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: Is there an accepted settlement "time of day"?

Post by grabiner »

ccieemeritus wrote: Mon Oct 21, 2024 4:32 pm I've heard that, even in a specific brokerage, the settlement transactions can occur at different moments for different orders.

Lets say you place two orders on the same day:

(initial cash balance $0)
1) Sell AAAA for $1000
2) Buy BBBB for $1000

During settlement, order #2 might settle before order #1. But you didn't have the cash to execute #2 at that moment resulting in a trading violation.
This particular transaction pattern is so common that I would be very surprised to see it leading to trading violations; there would be a huge number of violations if it did. Investors do this every time they sell and buy ETFs to rebalance, or harvest an ETF loss and buy another ETF, or otherwise switch their holdings.
Wiki David Grabiner
alex_686
Posts: 14061
Joined: Mon Feb 09, 2015 1:39 pm

Re: Is there an accepted settlement "time of day"?

Post by alex_686 »

grabiner wrote: Wed Oct 23, 2024 8:32 pm
ccieemeritus wrote: Mon Oct 21, 2024 4:32 pm I've heard that, even in a specific brokerage, the settlement transactions can occur at different moments for different orders.

Lets say you place two orders on the same day:

(initial cash balance $0)
1) Sell AAAA for $1000
2) Buy BBBB for $1000

During settlement, order #2 might settle before order #1. But you didn't have the cash to execute #2 at that moment resulting in a trading violation.
This particular transaction pattern is so common that I would be very surprised to see it leading to trading violations; there would be a huge number of violations if it did. Investors do this every time they sell and buy ETFs to rebalance, or harvest an ETF loss and buy another ETF, or otherwise switch their holdings.
This was a slight issue when people were selling stocks and bonds with a t+2 or (from personal experience when in brokerage operations) t+3 and then buying mutual funds that settled t+1.

It is and isn’t a big thing.

Operations get audited on how well they police this activity. So I am confident that it is being monitored.

On the other hand it is akin to speeding. You tend to be let off the first time with a warning. It is a common error that many people make and has a low impact. Repeat offenders are treated differently.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
MrJedi
Posts: 3589
Joined: Wed May 06, 2020 11:42 am

Re: Is there an accepted settlement "time of day"?

Post by MrJedi »

Fwiw yesterday at Fidelity I sold some ETF shares at about 2pm. I was able to withdraw the settled funds this morning when I first checked at about 7am.
dcabler
Posts: 5515
Joined: Wed Feb 19, 2014 10:30 am
Location: TX

Re: Is there an accepted settlement "time of day"?

Post by dcabler »

MrJedi wrote: Thu Oct 24, 2024 6:32 am Fwiw yesterday at Fidelity I sold some ETF shares at about 2pm. I was able to withdraw the settled funds this morning when I first checked at about 7am.
This has been my experience with Fidelity for ETFs as well since T+1 began. By the time I'm up and am having my first coffee, settlement has occurred.

Cheers.
"Repeating a thing doesn't improve it." Quote from Inman, as played by Jude Law, in the movie "Cold Mountain"
ThirstyScholar
Posts: 29
Joined: Tue May 21, 2024 5:10 pm

Re: Is there an accepted settlement "time of day"?

Post by ThirstyScholar »

dcabler wrote: Thu Oct 24, 2024 6:35 am
MrJedi wrote: Thu Oct 24, 2024 6:32 am Fwiw yesterday at Fidelity I sold some ETF shares at about 2pm. I was able to withdraw the settled funds this morning when I first checked at about 7am.
This has been my experience with Fidelity for ETFs as well since T+1 began. By the time I'm up and am having my first coffee, settlement has occurred.

Cheers.
That's reassuring. I have a somewhat large credit card autopay coming up on day T and was wondering whether I should sell ETFs on T - 1 or T - 2. Sounds like T - 1 is good to go!
Topic Author
nalor511
Posts: 5731
Joined: Mon Jul 27, 2015 1:00 am

Re: Is there an accepted settlement "time of day"?

Post by nalor511 »

alex_686 wrote: Mon Oct 21, 2024 3:44 pm
nalor511 wrote: Mon Oct 21, 2024 3:32 pm

Thank you Alex, when you say "overnight" are you referring to "before 23:59 on T+0" or "before 23:59 on T+1"?

Specifically I'm trying to ensure this order doesn't get reversed/frozen when my broker receives the ACATs
So that would be sometime after 4pm on t+1 but before 9 am of t+2.
Just out of curiosity, why does settlement not happen first thing before the market opens t+1, as it seems it does at fidelity? I suspect the answer is "because the rules don't require it"
alex_686
Posts: 14061
Joined: Mon Feb 09, 2015 1:39 pm

Re: Is there an accepted settlement "time of day"?

Post by alex_686 »

nalor511 wrote: Thu Oct 24, 2024 9:11 pm Just out of curiosity, why does settlement not happen first thing before the market opens t+1, as it seems it does at fidelity? I suspect the answer is "because the rules don't require it"
Because then it would be t+0.

I don’t know how Fidelity exactly operates. I know that the cash hasn’t been deposited yet. Maybe it is a costumer service thing. Can you actually get the cash the next day? Wire it out for example? If they did then Fidelity would have to float the cash for you which costs them interest.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
livesoft
Posts: 87936
Joined: Thu Mar 01, 2007 7:00 pm

Re: Is there an accepted settlement "time of day"?

Post by livesoft »

alex_686 wrote: Fri Oct 25, 2024 6:22 amI don’t know how Fidelity exactly operates. I know that the cash hasn’t been deposited yet. Maybe it is a costumer service thing. Can you actually get the cash the next day? Wire it out for example? If they did then Fidelity would have to float the cash for you which costs them interest.
Yes, I can get cash out the morning after I place a sell order that is executed. That is at WellsTrade where transfers to WF checking are almost instantaneous and not done by ACH. It is true that my other financial institutions use ACH to transfer to my external checking account and that takes one more day to make the transfer request on T+1 when the money appears in the brokerage settlement account, but that is separate from T+1 discussion. I have not needed to try to wire money out the same day as T+1.
Last edited by livesoft on Fri Oct 25, 2024 6:53 am, edited 1 time in total.
Wiki This signature message sponsored by sscritic: Learn to fish.
MrJedi
Posts: 3589
Joined: Wed May 06, 2020 11:42 am

Re: Is there an accepted settlement "time of day"?

Post by MrJedi »

alex_686 wrote: Fri Oct 25, 2024 6:22 am
nalor511 wrote: Thu Oct 24, 2024 9:11 pm Just out of curiosity, why does settlement not happen first thing before the market opens t+1, as it seems it does at fidelity? I suspect the answer is "because the rules don't require it"
Because then it would be t+0.

I don’t know how Fidelity exactly operates. I know that the cash hasn’t been deposited yet. Maybe it is a costumer service thing. Can you actually get the cash the next day? Wire it out for example? If they did then Fidelity would have to float the cash for you which costs them interest.
My next day settled funds were available for electronic transfer in the morning. The same balance is used for ATM availability so I could have gone to an ATM and gotten physical cash. Fidelity has fast ACH so my morning transfer actually posted at the bank about 12pm same day, less than 24 hours from the time I actually sold the shares.
Topic Author
nalor511
Posts: 5731
Joined: Mon Jul 27, 2015 1:00 am

Re: Is there an accepted settlement "time of day"?

Post by nalor511 »

So then what happens if you purchase shares of an ETF during market hours on Friday, and then enter a “full” acats on Sunday night just before midnight Mon? Sending firm will probably get the request around market open on t+1
Topic Author
nalor511
Posts: 5731
Joined: Mon Jul 27, 2015 1:00 am

Re: Is there an accepted settlement "time of day"?

Post by nalor511 »

nalor511 wrote: Fri Oct 25, 2024 5:55 pm So then what happens if you purchase shares of an ETF during market hours on Friday, and then enter a “full” acats on Sunday night just before midnight Mon? Sending firm will probably get the request around market open on t+1
Ok, I did the test. I purchased ETF shares before market close Fri, put in ACATs transfer at new broker Sun evening. I got email ~6:30a ET Mon from sending broker. Everything came over fine, no issues/warnings/rejections.

Different broker, I then bought ETF shares Mon, and put in acats Mon evening before. I got email ~6:30a ET Tues from sending broker. Again everything came over fine, no issues/warnings/rejections.
User avatar
sycamore
Posts: 7103
Joined: Tue May 08, 2018 12:06 pm

Re: Is there an accepted settlement "time of day"?

Post by sycamore »

nalor511 wrote: Wed Oct 30, 2024 9:18 pm
nalor511 wrote: Fri Oct 25, 2024 5:55 pm So then what happens if you purchase shares of an ETF during market hours on Friday, and then enter a “full” acats on Sunday night just before midnight Mon? Sending firm will probably get the request around market open on t+1
Ok, I did the test. I purchased ETF shares before market close Fri, put in ACATs transfer at new broker Sun evening. I got email ~6:30a ET Mon from sending broker. Everything came over fine, no issues/warnings/rejections.

Different broker, I then bought ETF shares Mon, and put in acats Mon evening before. I got email ~6:30a ET Tues from sending broker. Again everything came over fine, no issues/warnings/rejections.
Thanks for trying that.

Did you request a full account transfer? Or a partial account transfer that specified to transfer the newly-bought ETF?
Topic Author
nalor511
Posts: 5731
Joined: Mon Jul 27, 2015 1:00 am

Re: Is there an accepted settlement "time of day"?

Post by nalor511 »

sycamore wrote: Thu Oct 31, 2024 7:11 am
nalor511 wrote: Wed Oct 30, 2024 9:18 pm

Ok, I did the test. I purchased ETF shares before market close Fri, put in ACATs transfer at new broker Sun evening. I got email ~6:30a ET Mon from sending broker. Everything came over fine, no issues/warnings/rejections.

Different broker, I then bought ETF shares Mon, and put in acats Mon evening before. I got email ~6:30a ET Tues from sending broker. Again everything came over fine, no issues/warnings/rejections.
Thanks for trying that.

Did you request a full account transfer? Or a partial account transfer that specified to transfer the newly-bought ETF?
Full transfer both times but I think partial would have worked fine. The email from sending broker indicated they didn't get the request until "settlement day", which from my reading of finra rules https://www.finra.org/rules-guidance/ke ... fers#rules seems they don't have cause to hold back the shares (even if they didn't run their 'overnight cycle' yet). The shares don't get actually transferred until days later anyway. Glad it all worked
Post Reply