True risk in Risks in Clearance and Settlement

Question

Currently US stocks are settled in T+2 and options are settled in T+1 days.

Their is SEC proposal that is going to make stocks settlement to T+1 ( side comment, don't know if options will be cleared in T+0, i.e same day).

I am interested in knowing in due to lag in settlement ( when it was T+5 or T+3), if firms or individuals have really faced any loss.

As an individual investor, I do not see any situation where if I have bought some shares of an stock, I can deny payment. Similarly I do not see if I have sold some stocks, I do not see any way not to deliver the stocks.

Does this proposed change have any cons ? or if it all have both pros and cons.

I see issues for retirees who if are on vacation and have limited internet and if they have an open order to buy some stocks while renaming fully invested (suppose $200K+ in stocks) with zero cash in the brokerage account and buying power of $100K+ if the buy order gets through, they will need to immediately do the transfer from their high yield external checking/savings account( assuming they have this kind of account as brokerage pays very less on sweep account). And if these retirees are on vacation they may not come to know about transaction on time and will be delayed in the transfer and hence paying margin interest.

Answer 1

I am interested in knowing in due to lag in settlement ( when it was T+5 or T+3), if firms or individuals have really faced any loss.

Many times brokerages will not allow withdrawing or reinvesting unsettled funds. Especially for captive clients who can't go elsewhere. In my case, for example, I cannot withdraw the proceeds of my RSU sales until after they've settled, leaving me with a several days gap between the vest event and the cash actually hitting my pocket.

Does this proposed change have any cons ? or if it all have both pros and cons.

No. In the ancient ages, when people lived in caves, to settle a trade a seller had to send the certificate somewhere, have it endorsed, etc, while the buyer had to do the same with checks. With telegraphs, computers and trustees - gradually the actual delay in settling became shorter and shorter. Nowadays, when everything is online and electronic, even T+1 seems a bit excessive, but given the archaic American banking system may still be needed.