Settlement time for stock trades going to T+1 this year

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StrangePenguin
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Settlement time for stock trades going to T+1 this year

Post by StrangePenguin »

I saw a link to this SEC announcement that settlement times for securities transactions are going from T+2 to T+1 by May 28, 2024. https://www.sec.gov/news/press-release/2023-29#

This is probably a minor change for most of us. But I would think that it means that if one sells an ETF then that's 1 day faster that cash will be available to withdraw. For me personally this will mean 1 day sooner that I can move the cash proceeds from RSU sales out of that brokerage to the bank, which is a welcome change.

Here is a longer statement about the change: https://www.finra.org/investors/insight ... ent-cycles
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zaboomafoozarg
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Re: Settlement time for stock trades going to T+1 this year

Post by zaboomafoozarg »

Wow, it was T+3 for so long (and T+5 back in the 80s), amazing to see it going down to T+1!

Now if we could only find a way to make ACH settlement instant...
ryman554
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Re: Settlement time for stock trades going to T+1 this year

Post by ryman554 »

At t+1, that's effectively mutual fund timing, yes?

Sell, next business day can move cash?

Same becomes true for free ride violations: I can always buy something else day of sale, but now only need to wait to next business day to sell otherwise I get put in the penalty box..
the_wiki
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Re: Settlement time for stock trades going to T+1 this year

Post by the_wiki »

Nice for those using funds like SGOV or USFR for cash savings.
prd1982
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Re: Settlement time for stock trades going to T+1 this year

Post by prd1982 »

Will VG now require the money to be in your settlement fund before you buy? I can see ACH withdrawals not getting to VG in time
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TheTimeLord
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Re: Settlement time for stock trades going to T+1 this year

Post by TheTimeLord »

I guess I am the only one whose first thought was this will make it easier for hackers to transfer money out of your account before the are detected.
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Cannuck6969
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Re: Settlement time for stock trades going to T+1 this year

Post by Cannuck6969 »

Also effective in the USA that the X date will be the same as the record date effective May 29th following T+1 go live on May 28th. X date was always before record date. You may find the odd arbitrage opportunity for inter listed stocks during the transition since Canada goes live T+1 on May 27th
sycamore
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Re: Settlement time for stock trades going to T+1 this year

Post by sycamore »

prd1982 wrote: Sun Feb 18, 2024 4:03 pm Will VG now require the money to be in your settlement fund before you buy? I can see ACH withdrawals not getting to VG in time
Yes, in general VG (or any brokerage) would require that, at least for a cash account.

It's possible some brokerages will go ahead with a purchase if (1) your brokerage account is "linked" to a bank account and been verified; (2) you initiated an ACH transfer for a sufficient amount in a timely manner; and (3) you're a customer of sufficient vintage and activity that the brokerage is able to discern you're "good for it" even if the ACH doesn't come through exactly on settlement day for some reason.

Even if it's possible, I don't count on such things. It means I may have to wait a day before placing my trade.

Things are different for a margin account.

What kind of account do you have?
evancox10
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Re: Settlement time for stock trades going to T+1 this year

Post by evancox10 »

sycamore wrote: Mon Feb 19, 2024 12:01 pm
prd1982 wrote: Sun Feb 18, 2024 4:03 pm Will VG now require the money to be in your settlement fund before you buy? I can see ACH withdrawals not getting to VG in time
Yes, in general VG (or any brokerage) would require that, at least for a cash account.

It's possible some brokerages will go ahead with a purchase if (1) your brokerage account is "linked" to a bank account and been verified; (2) you initiated an ACH transfer for a sufficient amount in a timely manner; and (3) you're a customer of sufficient vintage and activity that the brokerage is able to discern you're "good for it" even if the ACH doesn't come through exactly on settlement day for some reason.

Even if it's possible, I don't count on such things. It means I may have to wait a day before placing my trade.

Things are different for a margin account.

What kind of account do you have?
Vanguard seems to accept an ACH pull request from your bank for mutual fund purchases, is there a reason to think it would be different for marketable security purchases? For ACH push from your bank to Vanguard, sure, it would need to settle before the T+1 settlement date, otherwise you would have some type of trading violation.

Maybe only a select few, vetted customers are granted this privilege, but I recall this being the way it always worked, even as a new customer. With the old web UI, you would initiate the purchase and the ACH pull transfer simultaneously. With the new web UI, it is a two-step process, but it does not seem to particularly depend on when the ACH pull settles. Maybe for the very, very, first funding transfer, they wait for funds to settle, but all of my purchases since have pulled from my bank and settled sometime later.
exodusNH
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Re: Settlement time for stock trades going to T+1 this year

Post by exodusNH »

zaboomafoozarg wrote: Sun Feb 18, 2024 8:10 am Wow, it was T+3 for so long (and T+5 back in the 80s), amazing to see it going down to T+1!

Now if we could only find a way to make ACH settlement instant...
The same company that runs ACH released a real time payment network in 2017. Customers just aren't demanding it. (The costs are higher, too.)

ACH actually has multiple windows where payments can process. Most banks don't take part, again because of demand.

I think Americans just got used to slow money transfer options from the banks. With apps like Venmo taking care of many person to person transfers, there just hasn't been demand.
exodusNH
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Re: Settlement time for stock trades going to T+1 this year

Post by exodusNH »

evancox10 wrote: Mon Feb 19, 2024 4:22 pm
sycamore wrote: Mon Feb 19, 2024 12:01 pm
prd1982 wrote: Sun Feb 18, 2024 4:03 pm Will VG now require the money to be in your settlement fund before you buy? I can see ACH withdrawals not getting to VG in time
Yes, in general VG (or any brokerage) would require that, at least for a cash account.

It's possible some brokerages will go ahead with a purchase if (1) your brokerage account is "linked" to a bank account and been verified; (2) you initiated an ACH transfer for a sufficient amount in a timely manner; and (3) you're a customer of sufficient vintage and activity that the brokerage is able to discern you're "good for it" even if the ACH doesn't come through exactly on settlement day for some reason.

Even if it's possible, I don't count on such things. It means I may have to wait a day before placing my trade.

Things are different for a margin account.

What kind of account do you have?
Vanguard seems to accept an ACH pull request from your bank for mutual fund purchases, is there a reason to think it would be different for marketable security purchases? For ACH push from your bank to Vanguard, sure, it would need to settle before the T+1 settlement date, otherwise you would have some type of trading violation.

Maybe only a select few, vetted customers are granted this privilege, but I recall this being the way it always worked, even as a new customer. With the old web UI, you would initiate the purchase and the ACH pull transfer simultaneously. With the new web UI, it is a two-step process, but it does not seem to particularly depend on when the ACH pull settles. Maybe for the very, very, first funding transfer, they wait for funds to settle, but all of my purchases since have pulled from my bank and settled sometime later.
Vanguard doesn't let you fund ETF and stock purchases from a bank account. They always fund from the settlement account.

They do currently let you purchase with $0 in your settlement account. When you put in an ACH, the funds become immediately available to trade, but not withdraw or move between accounts. Whether they continue to do this is an interesting question once T+1 is mandated.

My guess is that since they'd have to make a change to prevent it, it'll be status quo until they get burned enough to justify making a change.
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GarfieldBogle
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Re: Settlement time for stock trades going to T+1 this year

Post by GarfieldBogle »

With the change, does it means that ETFs/Stock sale cash settlement times will match Mutual funds now? I.E., if I sell on Monday, I'll be able to move the cash on Tuesday morning?
PersonalFinanceJam
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Re: Settlement time for stock trades going to T+1 this year

Post by PersonalFinanceJam »

exodusNH wrote: Mon Feb 19, 2024 4:40 pm
Vanguard doesn't let you fund ETF and stock purchases from a bank account. They always fund from the settlement account.

They do currently let you purchase with $0 in your settlement account. When you put in an ACH, the funds become immediately available to trade, but not withdraw or move between accounts. Whether they continue to do this is an interesting question once T+1 is mandated.

My guess is that since they'd have to make a change to prevent it, it'll be status quo until they get burned enough to justify making a change.
Fidelity is essentially the same way. However, I was shocked when they updated their recurring investment options to include ETFs/stocks it also included using a linked bank account as the funding source. I haven’t used that option myself so I don’t know if they try to initiate the ACH transfer early or not. I do know that when I started using Fidelity it seemed like ACH transfers sped up for the same bank account. Seems like if I get the ACH order in before noon eastern at Fidelity then it would execute the same day.

It’s been a few years since I used Vanguard but I would bet they also use one of the faster ACH options if available.
alex_686
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Re: Settlement time for stock trades going to T+1 this year

Post by alex_686 »

ryman554 wrote: Sun Feb 18, 2024 1:56 pm At t+1, that's effectively mutual fund timing, yes?
Mutual funds run on T+1. So actually, not effectively, the same timing.
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rkhusky
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Re: Settlement time for stock trades going to T+1 this year

Post by rkhusky »

TheTimeLord wrote: Sun Feb 18, 2024 4:09 pm I guess I am the only one whose first thought was this will make it easier for hackers to transfer money out of your account before the are detected.
+1
Less time to easily correct mistakes too.
nalor511
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Re: Settlement time for stock trades going to T+1 this year

Post by nalor511 »

rkhusky wrote: Mon Feb 19, 2024 7:44 pm
TheTimeLord wrote: Sun Feb 18, 2024 4:09 pm I guess I am the only one whose first thought was this will make it easier for hackers to transfer money out of your account before the are detected.
+1
Less time to easily correct mistakes too.
Yes less time to reassign tax lots
H-Town
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Re: Settlement time for stock trades going to T+1 this year

Post by H-Town »

StrangePenguin wrote: Sun Feb 18, 2024 1:46 am I saw a link to this SEC announcement that settlement times for securities transactions are going from T+2 to T+1 by May 28, 2024. https://www.sec.gov/news/press-release/2023-29#

This is probably a minor change for most of us. But I would think that it means that if one sells an ETF then that's 1 day faster that cash will be available to withdraw. For me personally this will mean 1 day sooner that I can move the cash proceeds from RSU sales out of that brokerage to the bank, which is a welcome change.

Here is a longer statement about the change: https://www.finra.org/investors/insight ... ent-cycles
It's welcoming. But it won't impact us. We sold RSU shares and then bought VTI/VXUS on the same day. Never have to wait 1 or 2 days.

When we get to withdrawal phase, maybe we'll take advantage of it.
Time is the ultimate currency.
JSPECO9
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Re: Settlement time for stock trades going to T+1 this year

Post by JSPECO9 »

This is great for those of us who don't use an emergency fund.
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Re: Settlement time for stock trades going to T+1 this year

Post by beyou »

TheTimeLord wrote: Sun Feb 18, 2024 4:09 pm I guess I am the only one whose first thought was this will make it easier for hackers to transfer money out of your account before the are detected.
Since mutual funds and US Treasuries were already T+1, this is just more of the same.

And the reason here is to reduce another risk, counterparty risk. The longer a trade goes unsettled, the more chance a broker or counterparty may fail and never settle the trade. So say you sold a stock and the price falls after your trade, or buy and it rises after your trade. The other party defaults, you lose the gain or do not avoid the loss as expected. Shorter the window the less risk of default. Regulators would prefer t+0 same day settlements to reduce the risk further, but that is a much larger technology investment to implement.
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TheTimeLord
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Re: Settlement time for stock trades going to T+1 this year

Post by TheTimeLord »

beyou wrote: Wed Feb 21, 2024 11:45 pm
TheTimeLord wrote: Sun Feb 18, 2024 4:09 pm I guess I am the only one whose first thought was this will make it easier for hackers to transfer money out of your account before the are detected.
Since mutual funds and US Treasuries were already T+1, this is just more of the same.

And the reason here is to reduce another risk, counterparty risk. The longer a trade goes unsettled, the more chance a broker or counterparty may fail and never settle the trade. So say you sold a stock and the price falls after your trade, or buy and it rises after your trade. The other party defaults, you lose the gain or do not avoid the loss as expected. Shorter the window the less risk of default. Regulators would prefer t+0 same day settlements to reduce the risk further, but that is a much larger technology investment to implement.
Personally, I would prefer everything be T+2, in many things speed leads to unintended consequences. I am far more concerned about hacking than counterparties and I think the regulators should be too.
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beyou
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Re: Settlement time for stock trades going to T+1 this year

Post by beyou »

TheTimeLord wrote: Thu Feb 22, 2024 8:01 am
beyou wrote: Wed Feb 21, 2024 11:45 pm
TheTimeLord wrote: Sun Feb 18, 2024 4:09 pm I guess I am the only one whose first thought was this will make it easier for hackers to transfer money out of your account before the are detected.
Since mutual funds and US Treasuries were already T+1, this is just more of the same.

And the reason here is to reduce another risk, counterparty risk. The longer a trade goes unsettled, the more chance a broker or counterparty may fail and never settle the trade. So say you sold a stock and the price falls after your trade, or buy and it rises after your trade. The other party defaults, you lose the gain or do not avoid the loss as expected. Shorter the window the less risk of default. Regulators would prefer t+0 same day settlements to reduce the risk further, but that is a much larger technology investment to implement.
Personally, I would prefer everything be T+2, in many things speed leads to unintended consequences. I am far more concerned about hacking than counterparties and I think the regulators should be too.
You are entitled to your opinion but that will never be the priority of regulators, nor is your preference the right solution. You want a solution that offers minimal protection for online hacking, and maybe you do not understand the far more global consequences of the risk they correctly have prioritized. T+1 will help reduce some of the fallout from crises such as when Lehman went under in 2008. It has almost nothing to do with online security. Better technical methods of security (like hardware keys), regulated infosec at brokerages and more would be better.
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TheTimeLord
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Re: Settlement time for stock trades going to T+1 this year

Post by TheTimeLord »

beyou wrote: Thu Feb 22, 2024 4:28 pm
TheTimeLord wrote: Thu Feb 22, 2024 8:01 am
beyou wrote: Wed Feb 21, 2024 11:45 pm
TheTimeLord wrote: Sun Feb 18, 2024 4:09 pm I guess I am the only one whose first thought was this will make it easier for hackers to transfer money out of your account before the are detected.
Since mutual funds and US Treasuries were already T+1, this is just more of the same.

And the reason here is to reduce another risk, counterparty risk. The longer a trade goes unsettled, the more chance a broker or counterparty may fail and never settle the trade. So say you sold a stock and the price falls after your trade, or buy and it rises after your trade. The other party defaults, you lose the gain or do not avoid the loss as expected. Shorter the window the less risk of default. Regulators would prefer t+0 same day settlements to reduce the risk further, but that is a much larger technology investment to implement.
Personally, I would prefer everything be T+2, in many things speed leads to unintended consequences. I am far more concerned about hacking than counterparties and I think the regulators should be too.
You are entitled to your opinion but that will never be the priority of regulators, nor is your preference the right solution. You want a solution that offers minimal protection for online hacking, and maybe you do not understand the far more global consequences of the risk they correctly have prioritized. T+1 will help reduce some of the fallout from crises such as when Lehman went under in 2008. It has almost nothing to do with online security. Better technical methods of security (like hardware keys), regulated infosec at brokerages and more would be better.
That fine, although I am talking about detection not prevention. But honestly I don't see how T+1 addresses 40:1. This is just my ignorant preference.
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beyou
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Re: Settlement time for stock trades going to T+1 this year

Post by beyou »

TheTimeLord wrote: Thu Feb 22, 2024 5:20 pm
beyou wrote: Thu Feb 22, 2024 4:28 pm
TheTimeLord wrote: Thu Feb 22, 2024 8:01 am
beyou wrote: Wed Feb 21, 2024 11:45 pm
TheTimeLord wrote: Sun Feb 18, 2024 4:09 pm I guess I am the only one whose first thought was this will make it easier for hackers to transfer money out of your account before the are detected.
Since mutual funds and US Treasuries were already T+1, this is just more of the same.

And the reason here is to reduce another risk, counterparty risk. The longer a trade goes unsettled, the more chance a broker or counterparty may fail and never settle the trade. So say you sold a stock and the price falls after your trade, or buy and it rises after your trade. The other party defaults, you lose the gain or do not avoid the loss as expected. Shorter the window the less risk of default. Regulators would prefer t+0 same day settlements to reduce the risk further, but that is a much larger technology investment to implement.
Personally, I would prefer everything be T+2, in many things speed leads to unintended consequences. I am far more concerned about hacking than counterparties and I think the regulators should be too.
You are entitled to your opinion but that will never be the priority of regulators, nor is your preference the right solution. You want a solution that offers minimal protection for online hacking, and maybe you do not understand the far more global consequences of the risk they correctly have prioritized. T+1 will help reduce some of the fallout from crises such as when Lehman went under in 2008. It has almost nothing to do with online security. Better technical methods of security (like hardware keys), regulated infosec at brokerages and more would be better.
That fine, although I am talking about detection not prevention. But honestly I don't see how T+1 addresses 40:1. This is just my ignorant opinion.
Not sure what you mean by 40:1, maybe I am ignorant about something too. But I did explain an example above of why T+1 is a goal of the regulators. T+0 has been an unrealistic stated goal of the regulators since the 1990s for reasons that have never wavered. There are larger root causes of counterparty risk that were mitigated since the GFC, and this is another less impactful but still important piece of the puzzle. Basically counterparty risk reduction protects your mutual fund, insurance firm etc, from failure of their brokers, and protects brokers from each other. This helps to avoid the ripple effect that started in 2008 that led to gov bailouts due to lack of such mitigation. I explained how risk is reduced above, and that is the ONLY reason this change is being made. Has nothing to do with convenience, nor security whatsoever. It is meant to plug another hole in the dam preventing global financial meltdown without gov bailouts. The less $ and time brokers owe each other and customers money, the less impact they have on the industry when they fail.

https://www.securities-services.societe ... edium=XXXX

“benefits from this change. In particular, a reduction in counterparty risk”

https://www.investopedia.com/articles/o ... y-risk.asp

https://www.risk.net/definition/counterparty-risk
stockwiz
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Re: Settlement time for stock trades going to T+1 this year

Post by stockwiz »

Just received the news in my email:
The trade settlement period will be shortened to one day beginning May 28, 2024.
Starting on May 28, 2024, the settlement period for most securities traded on U.S. exchanges or over the counter will shorten from two business days (T+2) to one business day (T+1). For most investors, this event may have little or no impact. However, there are a few key things to know.

New shortened settlement period reduces risk.


The T+1 settlement period may benefit investors like you by reducing credit and liquidity risks present between the trade date and the settlement date. This is an industry-wide change for most security transactions and types, such as stocks, bonds, municipal securities, exchange-traded products, secondary market CDs, unit investment trusts, and certain mutual funds and limited partnerships that trade on U.S. exchange or over the counter. There will be no change to the settlement period for treasuries, options, or futures as they already use the T+1 settlement period.

Cost basis Implications


After T+1 goes into effect, any changes to your cost basis method will have to be made within one business day of the trade, not two.

Margin interest implications


If you place a trade in a margin account and then need to sell money market funds (“MMFs”) to cover your purchase, the funds will need to be available prior to or on the same day as the trade settlement to avoid being charged margin interest. For trades placed for bonds, equities and other securities, the MMFs will need to be sold by 4 p.m. ET the same day the purchase trade is placed.

To avoid accruing margin interest:

• MMFs will need to be sold by 4 p.m. ET to cover trading in the after-hours market that same day.
• MMFs will need to be sold by 4 p.m. ET to cover purchases of Fixed Income securities that can be traded until 5 p.m. ET the same day.
Your next steps.


The new settlement period will automatically apply to any new trades executed on or after May 28, 2024. You may need to pay closer attention to how the shorter settlement time could affect your investment, trading, or tax decisions.

Check out our online resources.

If you have any questions or need more information, please visit schwab.com/T1.
Hyperchicken
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T+1 settlement starts on or about May 28, 2024

Post by Hyperchicken »

[Merged into existing discussion - moderator oldcomputerguy]

I don't think this has been posted yet.

Today I logged into my Merrill Edge account, and saw the following announcement - I think this might be of interest to many.
Important Changes
On or about May 28, 2024, the trade settlement cycle for the U.S., Canada and Mexico is being shortened to one business day after trade date (T+1).

The trade settlement cycle is being shortened — here's how it will impact you.
On or about May 28, 2024, U.S., Canadian and Mexican financial industries plan to shorten the settlement cycle process that controls a significant volume of financial activity. Specifically, the settlement cycle for buying and selling stocks, ETFs and certain other securities that trade on exchanges, as well as for the purchase and sale of corporate and municipal bonds in these jurisdictions will shorten from two business days after trade date ("T+2") to one business day after trade date ("T+1"). This change is designed to reduce costs, increase market efficiency, and reduce settlement risk in security transactions.

What does T+1 mean for you?
After the industry completes the move from T+2 to T+1, certain processes related to your trading activity will change. In particular, you must provide payment more promptly following a purchase on the local or international exchanges, and you will receive payment faster following the sale of a security.
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Re: T+1 settlement starts on or about May 28, 2024

Post by lostcoast2023 »

Hyperchicken wrote: Tue May 14, 2024 10:55 pm I don't think this has been posted yet.
It has: viewtopic.php?t=424748
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Re: Settlement time for stock trades going to T+1 this year

Post by whodidntante »

Did anyone figure out a way to exploit this in a way that fully complies with the law? :P

Not T+1, but the change to T+1.
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Re: Settlement time for stock trades going to T+1 this year

Post by mariezzz »

TheTimeLord wrote: Thu Feb 22, 2024 8:01 am Personally, I would prefer everything be T+2, in many things speed leads to unintended consequences. I am far more concerned about hacking than counterparties and I think the regulators should be too.
I understand the concern. For accounts which allow it, you could set up alerts to your email and phone for any sales or outgoing transactions, or any changes to your account settings (in case the hackers try to change these).
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Re: Settlement time for stock trades going to T+1 this year

Post by billaster »

The biggest impact might be on big hedge fund short sellers. They have been exploiting the T+3 and T+2 delays for years to place their illegal naked shorts. T+1 is going to squeeze them to actually have the shares in hand before they sell their shorts.

It will be interesting to see if the SEC steps up enforcement against illegal naked shorts. The T+1 will likely result in more instances of "Failure to Deliver" in violation of Regulation SHO. The SEC has historically been very lax on enforcement.
https://www.investopedia.com/terms/r/regsho.asp
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Re: Settlement time for stock trades going to T+1 this year

Post by edge »

Ach already has same day capability which is probably ‘good enough’.
zaboomafoozarg wrote: Sun Feb 18, 2024 8:10 am Wow, it was T+3 for so long (and T+5 back in the 80s), amazing to see it going down to T+1!

Now if we could only find a way to make ACH settlement instant...
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Re: Settlement time for stock trades going to T+1 this year

Post by edge »

Venmo aka PayPal uses TCH RTP via JPMC. Last I checked JPMC originates almost ALL (the entire network) RTP sends via their fintech clients. Nearly all other banks predominantly receive.
exodusNH wrote: Mon Feb 19, 2024 4:32 pm
zaboomafoozarg wrote: Sun Feb 18, 2024 8:10 am Wow, it was T+3 for so long (and T+5 back in the 80s), amazing to see it going down to T+1!

Now if we could only find a way to make ACH settlement instant...
The same company that runs ACH released a real time payment network in 2017. Customers just aren't demanding it. (The costs are higher, too.)

ACH actually has multiple windows where payments can process. Most banks don't take part, again because of demand.

I think Americans just got used to slow money transfer options from the banks. With apps like Venmo taking care of many person to person transfers, there just hasn't been demand.
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