Are you excited about T+1 Settlement? It’s a pretty big deal for those of us who make a lot of investment trades and it starts on May 28. If you haven’t heard about this yet, don’t fret. The main thing to know is that security trades settle sooner – the next day vs. two days later. That means you can get your money faster if you need to cash out of an investment.
In the old days before electronic trading, Wall Street trades involved the exchange of actual physical certificates. You have probably seen stock and bond certificates. (You may even have one buried in your attic somewhere.) When a trade was made, the seller had to deliver the paper certificate to the buyer and that could take a number of days. This period of days is called the settlement period, the length of time before the trade is finalized.
Today the settlement time is two days (T+2). Since most transactions are electronic and instantaneous, this seems unnecessarily long. Brokers do need time to process and verify the trades, though. This has been streamlined and the industry will now do this within one day. For example, if we sell shares for you on a Tuesday, your money from those shares will be available on the next business day, Wednesday, since the trade will settle the next day. The main advantage for our clients is that we can expedite cash requests more quickly than before. It’s a net positive for the industry and for investors, in our view.
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