T+1 Starts Today
I hope you and your family enjoyed Memorial Day and held in reverence, if only for a moment, the ultimate sacrifice made by so many who served in our Armed Forces. As I typically write these posts on Mondays and since yesterday was a holiday, I slowed my routine down a bit. The result is this shorter but still important post.
I say important because today, Tuesday May 28th, marks an improvement in the behind-the-scenes complexity of my industry. Starting now you can access your investment dollars a little faster as we’ve moved to a T+1 settlement period.
This is one of those things most people never think about until it gets in their way. Imagine you sell a stock in your brokerage account. When can you get the cash? Or say you just bought a share of stock. When do you fully own it? The answer to both questions is when the transaction settles, the date when ownership has formally transferred and payment needs to have been made. This may seem like it’s immediate, or at least should be, but it isn’t. After you click “sell” or “buy” there’s infrastructure working for you although you rarely see it. As of last week this settlement process typically happened within a regulated period of two business days following the trade date but now it will take only one.
This might sound like a small change and I suppose it is in the grand scheme of things. However, being able to access your money faster is always good news, right? Back in 2017 trade settlement on most investments was T (the trade date) plus three business days and this had been the case since the 70’s or 80’s, I think. Before that it was T+5 and not all stock exchanges had the same settlement periods.
Going back to the early days of the stock market here and abroad in places like Amsterdam and London where public stock markets began, settlement was measured in weeks. That makes sense given how delivery of paper stock certificates and money as payment were transferred via ship and horseback. But these days paper certificates are anachronisms you have to special order and usually pay a fee for. It’s all digital now so trade settlement should be fast! Of the hundred-plus-million trades placed each day in the US, most don’t even need a human to touch the settlement process. Eventually, through advancements in blockchain technology, the settlement period could be instantaneous, or T+0.
While there’s always more to it than what I’m mentioning here, the important takeaway is the practical impact of this change. Many mutual funds and government bonds already had T+1 settlement, but now pretty much everything does. This means if you’ve hooked up your brokerage account or IRA to your bank account, you can sell shares today when the market is open and be able to move or otherwise access the cash tomorrow (assuming the market and banks are open). Wires could go out then as well or, via the ACH system, you’d have money at your bank the following day. On the buy side you’ll have to pay for the purchase by the next business day, but this won’t necessarily impact most investors. So, faster is better.
I love this change because I’ve always operated with a sense of urgency when it comes to helping you with your investments and I absolutely can’t stand unnecessary delays or restrictions when sending money to you. It took seven years to go from T+2 to T+1. Who knows how long it will be before T+0, but I’ll take one day faster all day long until then.
Have questions? Ask us. We can help.
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